Fixed. I had changed the default user (used for the free books) deviceID in the db to match my kobo (it is the mac address) after the copy from my wife's kobo. I changed this back to the value used on my wife's and now the free books are working. I realized that this value was not tied to the device directly as my user entry was not the MAC address.
I really have no idea why the problems I have had showed up right out of the box. Many new customers would have been forced to deal with support or return the Kobo - it would not provide a very pleasant first experience.
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