Does the Kindle not play mp3 files?
Yes it does but it cannot be expanded beyond its built in memory.
Those other issues are to do with the gui rather than the underlying OS and should be relatively easy to fix for someone who can program in the language that they have chosen to use for the user interface.
However the underlying OS is pretty easy to modify, all you have to do is modify /rc.elisa and unpack /zImage, modify it and repack it. They also use a mass of proprietary .feb files, but these could all be replaced by lightweight open source programs. The /rootfs.cramfs probably wouldn't need much of a change and neither should /u-boot.bin but the /flow_copy folder might be more difficult.
I haven't look inside these folders/files so it is difficult to give a complete answer as that would involve cracking the password and I don't do that.