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Our Kobo Wifi was having the same issues: no books found, and unable to load books even after a factory reset. After contacting Kobo support, we received a replacement Kobo Touch ereader. We had our Wifi for over 3 years and it worked fine until the recent update.
Although I am disappointed that Kobo continues to release this faulty firmware update even after several months of problems, it was nice to get a replacement for a 3 year old device.
Thanks to the contributors to this thread for helping me to identify the problem, and to realize that a replacement device from Kobo was an option.
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