Came home from work today and picked up my nook, the replacement one running v1.3, and my B&N library was showing up!
Interesting that I didn't even have to "Check for new B&N content"...
As a test, I went ahead and did the "Check for new B&N content" and it completed without the error message I had been seeing.
Additionally, when I did the sync in my PC eReader software my B&N library showed up there also.
Color me a happy camper!