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I'm surprised people are arguing against library books for Kindle. This is a repeatedly requested feature, and people are constantly assuming it'll work for kindle and then being surprised when it doesn't.
Honestly, I think that a library that has the choice of purchasing library books for, say, Sony readers and the Kindle will probably choose the Kindle because Kindles are so well known and there's so many of them out there compared to the Nook, the Sony readers, and so on. As a Kindle owner, I'm glad to see this coming -- I buy books fairly often, download freebies in genres I'm interested in, and would also love to be able to check out books from my local library (which I still do check out print books from).
I have a very good local library consortium available to me, and I'd love to see an option for Kindle book lending from them.
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