Is there a book that talks about the history of scholarship
in modern literature?  I.e. the formation of the first university
English depts (which presumably at first studied very old stuff
like the Canterbury Tales and Beowulf), and the gradual transition
to writing about contemporary literature.

Paul,

I haven't come across a book that is precisely what you need, but you
might take a look at the titles in this bibliography:

Bibliography for the History of English Studies
http://english.cla.umn.edu/Faculty/RALEY/research/biblio.html

~Pink

This related page may also be of interest:

http://english.cla.umn.edu/Faculty/RALEY/research/englstud.html

Whole libraries have been written about the History of English
Studies; but a good starting point for the subject is the first
chapter in Terry Eagleton?s book: LITERARY THEORY (first published by
the Oxford University Press in 1983, the Second Edition was published
1996).

The first chapter is entitled The Rise of English and Eagleton debunks
the myth that the ?Great Writers? of the English Cannon are somehow
timeless and how the early university English departments enshrined
this myth and other value-laden judgements about the worthiness or
otherwise of the cannon into their teachings.

Terry Eagleton writes with style and authority (he was a Professor of
English at the University of Oxford) and also humour. Read that first
chapter and read the book and you will never read in quite the same
way again.

I have not read this book, but it sounds as if it may be the kind of
thing you're looking for:

"Bacon, Alan (Birbeck College, UK) 
The Nineteenth Century History of English Studies 
Ashgate, October 1998, 280 pp., ISBN 1-84014-278-2, $76.95 

Description:
This book is a source/reference book for use by students of the
history of criticism, the history of language, and generally, the
status of English as a fully-fledged academic discipline--all topics
which are now included in important courses in the great majority of
English Departments in the UK and overseas. The accounts given in most
current texts owe much to the judgment of the Leavises and the
Leavisites or to their opponents and center on the primary of Matthew
Arnold and whether or not he was a 'good thing.' As this book shows,
the subject was already established and the debate already under way
before Arnold became important."

University of Southern California Department of English: New Books in
Nineteenth-Century Studies
http://www.usc.edu/dept/LAS/english/19c/books/book-1-84014-278-2.html

This article is rather brief, but you may find it interesting:

http://education.guardian.co.uk/higher/books/story/0,10595,727775,00.html