Sorry to join the conversation so late, but i recently developed a home grown book recommendation system. At the moment, it covers about 40,000 books from Project Gutenberg, but I plan on adding free books from other sources. I used a recommendation engine developed by the University of Hildesheim in Germany and am currently experimenting with different recommendation techniques to improve the accuracy.
My system addresses some of the issues that you mentioned and:
* Does not recommend books that you already have downloaded
* Incorporates a rating system where you can rate books. Your ratings are a key factor in suggesting new recommendations for you
* If you have not rated anything yet, the general popularity of a book based on the number of downloads by other people is used
If you want to try the system out, the URL is:
http://www.impactsoftwarelabs.com/book/new.php
Bruce