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Yes, by backing up all the files (including hidden/system files) on your Kindle, you will be able to clone the contents of your Kindle. Please note that custom hacks (in the Kindle Developer's Corner) are in a separate location and will not be backed up. In addition, you will have to reconfigure most of your settings. However, all of your books and collections will be saved (including annotations). As you noted, the DRM'd books will have to be redownloaded from Amazon since they are encrypted to open only on the original Kindle.
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