First, could you read at least one library book ok before? I ask that just to make sure that your ereader is properly authorized and working with ADE DRM-protected files.
What you describe has happened to me before with my 505 which also had this conflict problem. What I did was to delete all copies of the library books (both EPUB and PDF formats) from both my reader and my computer hard-drive. Try that and start with a clean slate. Then redownload only one file format, i.e. just the PDFs, from your library account. Transfer it to your ereader and see if that works.