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Just reporting back: the replacement unit works fine, so indeed seems to be a hardware issue.
Might be worth it to add this to the FAQ, as I'm clearly not an isolated case - something along the lines of:
'If your Kobo is not recognized correctly when plugged into a computer, and you're prompted with "You need to format the disk before you can use it", try a factory reset. If that doesn't solve the problem, you need to send it in for replacement. This behavior can occur before or after a firmware update, but is not software related.'
FWIW I tried the original unit with two different PCs, an Intel and AMD platform, but both running Windows 7.
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