"Anything you can do, I can do better..."
(Persistent whispersync annotations for library books=I'll see your feature and raise you one.")
About the size of the library pool, there are several possibilities.
Considering they're using a Kindle app to get to the books, not ADE on a PC, it is not impossible that they might do on-the-fly format conversion; Overdrive server to Amazon server to Kindle. Or maybe they could check out the epub/pdf license and serve an equivalent mobi book. Or maybe overdrive will serve epubs with kindle drm to a secret epub reader on the kindle. Or maybe Amazon will pay for a pool of mobi books to be fronted by the libraries. Lots of ways to slice that loaf..
It'll be interesting to see how they handle the plumbing and what effect adding a few million more library-capable readers to the lending pool does to the waiting times.
I'm thinking this might neuter the competitive/bragging value of library ebook access in *two* ways; by matching the availability of the feature and simultaneously making the feature less valuable by increasing the wait times. In other words, this might fall under the heading of "Be careful what you ask for; you might get it."