It has to do with some of the other residencies. Ophthalmology recently closed because (from what I've heard) attendings weren't staffing the clinics -- only residents were. Instead of hiring more attendings, they closed the program. (???) The current residents were moved into other programs.
Erlanger is an excellent hospital. Three of my fellow graduates, one of whom is a close friend, are residents there. One is in surgery, one is in pediatrics, and my friend is in internal medicine. She likes it there.
I think the probation is a technical issue and doesn't reflect the quality of the IM program or the quality of the hospital. The hospital isn't a "public" hospital by any means. It's adequately staffed, has a very nice reputation, etc.