Yes, the free book would also have to be non-agency, as that would be changing the price. I think (but I would check with them on this also) you could buy the agency books that have been reduced to qualify for one of the coupons because that would not affect the price on the agency books. That would be a cheaper way to qualify for the coupon. Most of them are in the Cheap Reads category here:
http://kobobooks.com/lists/Cheap_Rea...Q3oQB1A-1.html