Old EV batteries are great for energy storage. A worse weight-to-capacity ratio doesn't matter for batteries sitting on the ground. A battery that holds only 70% of its original capacity is considered worn-out for EVs (and even replaced under warranty), but grid storage isn't driving anywhere, so any capacity left is still useful.
Parting out two or three dead battery packs to cull the best of the survivors can improve things quite a bit. And as you say, on a stationary pack you can afford to overdo telemetry, cooling, and safety circuitry because it doesn’t have to move, let alone accelerate.
I don’t know what the half life is like for the reused cells though. Do the cells that lasted twice as long as their neighbors continue to outperform or do they revert to the mean over time? I could see either being true. The days when you accidentally produce cells that are several stddev better than your target quality should make cells that last longer, unless they’re sold to a leadfootted driver.
I'd wager the bulk of them are hybrids where the batteries see a pretty aggressive charge/discharge cycle on a relatively small capacity (and therefore being relatively cheap to replace compared to a full electric). Of course then there are also full electrics where the owners get upgraded capacity or replacements due to degradation from use.
And importantly they aren't just recycling EV batteries here. They are using lithium-ion, nickel metal-hydride, and lead-acid batteries. So they are also buying up traditional ICE automotive batteries as well.
Also worth noting this project is a collaboration between Toyota, JERA, and local universities for use at JERA's facilities. JERA is a large battery reprocessing and recycling company so they are already getting second hand batteries into their facilities on a regular basis. This project is primarily about doing the design and engineering work necessary so that JERA can set up an array of these battery containers, get notified when a unit fails, and swap out the battery with one from their stock for recycling.