The Kindle Lending Beta at the Seattle Libraries has been all over the news on the 'net the last couple of days, but today over 11,000 libraries are participating with Overdrive and have Kindle books available as an option. There has been a lot of misinformation out there on how it will work: these are not EPUB's converted to Kindle or some type of Kindle wrapper around a PDF, but the same Kindle books that you can buy at Amazon. No upgrade of your Kindle is required (although one is coming, for Special Offers Kindles, to allow you to get local offers, starting in NYC) and Amazon has NOT added support for EPUB (which would require license fees to Adobe; why bother, when they already have the books in their catalog and own their own DRM scheme, the same as Adobe and B&N?).
What Overdrive has done is tag all books that are in their library system with the ASIN at Amazon, so that they can simply pass to Amazon a "lend" of a book (just as if you had borrowed a book from a friend). All features work just like you are used to (highlights are saved on your Kindle and to your kindle.amazon.com page) and if you buy the book later, all your notes and bookmarks get re-downloaded to your Kindle, so you can start reading where you left off. Amazon has set up a special help page (that appeared yesterday), for the very few questions you might have on how it works. However, it's just a matter of a few clicks, for most people - on the library checkout page, you click on "get for kindle" instead of "download", then are transferred to an Amazon page. Make sure you are logged in to the correct Amazon account (for households that have more than one or if on a shared/public computer), then pick your Kindle and click to send it. It works exactly the same as received a gift book or borrowing a book from a friend.
I just checked my local library and it certainly looks as if any book that has an EPUB edition available is now available as a Kindle edition, as well. I finally found a PDF only edition that didn't update (so, it's still PDF only), but many of the PDF editions also added EPUB and Kindle during the update. Not every library has switched over - a library I belong to in California is still showing the "coming soon" logo (and they are not stocked nearly as well as our local library, that started a major push into ebooks last year and now has a tremendous selection). For those overseas - it doesn't look like library books are coming soon; I checked at least one non-US Overdrive served library and there is no mention of Kindle books as an option. On the other hand, I know there are overseas members at some US libraries - you should now have the same access as other patrons in the US.
Another new feature at the library - you add the book as a whole to your wishlist (rather than each format), but a reservation/hold is against a specific format. Every book that was already in my library wishlist is now showing a Kindle edition choice -- I didn't have to go back and add them again for Kindle. It also appears that the changeover granted the library access to both EPUB, Kindle (and in some cases PDF) editions of books that they only had as Audiobooks, before, as I had Port Mortuary on my wishlist and the library only had an audiobook - this morning, they have EPUB, Kindle and PDF, so I snagged it immediately. You are not restricted to a single Kindle device, either - once I went thru the page to get the book delivered to my primary Kindle, I was given a choice of downloading the book via USB and also told that I could transfer the book to any of my other Kindles, as well (so, I promptly did). Be careful on the Manage My Kindle page, though -- there is now a new "Purchase this book" option, just below the "Deliver to" action; if you are on an iPad, you know that the page doesn't display well, so blow it up to a huge size, to make sure you don't fumble-finger a purchase when you meant to click on Read Now or Deliver To. That's also where you can return a book, in case you finish reading it before your lending period is up. My library allows 7, 14 or 21 day lending periods, so it's nice to be able to pick a longer loan, but return if if you finish early (or can't finish it at all!).
There is one restriction of a library lending, that you may not have considered: library books can only be wirelessly delivered by WiFi, not 3G (so that Amazon doesn't incur a charge for the transfer and neither do you), to a Kindle device (this restriction does not apply to an iPad or phone/tablet running the Kindle app, since you pay for any 3G charges there). You can borrow a library book and read it on ANY kindle device, but you use USB to transfer the book, if the Kindle you have doesn't have WiFi.