Free ain't easy.
AFAIK only Sony allows direct downloads from Overdrive for library books, so if that's important to you then your decision is made. If public domain books are more important then Kobo is cheap and simple and comes pre-loaded with 100 public domain books. If you want the best access to public domain books via a bookstore, Kindle might be your best bet, but it fails your epub requirement. If your nephew likes science fiction, he can email ebooks from Baen's free library directly to a Kindle, or you can even use the email option to send him free books you've downloaded for him from Project Gutenberg or other sites. None of the e-ink readers have everything, you'll have to compromise.