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this happened to me as well - just went to read my book (hadn't opened my nook in a few days, so it's possible that it actually happened at the same time as your wife), and I had to go through the setup wizard, and all of my side loaded books had disappeared from the device. It's also reset to 1.3.0 although it had previously updated to 1.3.1.
I wasn't home and luckily there was a TWCwifi network accessible so that I could re-register the device to even figure out what was going on.
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