There was a brief period of time, when the Calibre driver and Kobo changes did some odd things--including messing with the database. I believe there were two Calibre versions in the past month that were problematic. Corrupted databases (and their are reasons other than Calibre that can result in a Db can become corrupted) create all sorts of havoc with 1.8. The solution seems to be to replace the Db and various other things. Please
see the installation post for more on that.
The flashing blue light does seem to be a processing thing. For some reason, after a few days, most of the flashing (except on page turns) went away on my reader. Initially, the light would flash repeatedly for chapter changes. I'm not seeing that happening any more.