What do you mean by "reset itself"? I can think of a few possibilities: reboot at some point, clear the library of all your books, clear the library and log you out of the device, do a factory reset so that it is back to the "as new" state. Those are all possibilities that could match your description. Some more information would help to try and work out what is wrong.
To recover did you do a factory reset or just copy the books back onto the device?
The bit with the light going off and on is new. That does sound like something you will need to talk to Kobo about.