A visitor to the GetSatisfication website quoted this message from a Kobo employee.
Quote:
The have found out what is causing the storage error problem. They are working on a solution and expect to have it in place for the next release. The released is planned for next week but they want to make sure it the issue is fully resolved. .............. In the meantime, you can simply 'x' out of the error message and continue using the device. You do not have to perform the factory reset. We thank you for your patience in this matter.
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So it appears that the resolution to this problem is near.