Ehm, why on earth wouldn't you be able to organize sideloaded books into collections?

Mind you, depending on the firmware (best to either run the latest firmware or <=5.4.0), Cloud Collections would be a mess and offer you extra nags on top of nags for sideloaded books. Or so I've heard.
@OP,
The PW can do anything the K4 can do, aside for edge cases regarding the jailbreak. If you could register your K4, you can register the PW.
You can also just skip registering and use it unregistered.
Unless the seller ripped you off and sold you a stolen devlce, always a risk when buying secondhand. A blacklisted PW is no more able to be registered than a blacklisted K4. Although blacklisting will only affect your ability to register.
If you do end up jailbreaking it (over the serial port, of course), then there are hacks that bypass the native UI and create collections directly through the Content Catalog. Effectively, you get collections without registering.