Looking at the
pic's in Nate the great's post it seems like books borrowed through OverDrive from the device might be KePubs synced from Kobo's cloud, rather than ePubs fulfilled from Adobe's cloud like on the Sony devices?
Edit: And if that is the case, it seems a lot like the way Amazon does public library borrowing in the US, and so raises all those problematic legal and ethical issues about a private company using data of public library borrowers' reading records to try to sell them books.
Although the case might be a bit different for Kobo since unlike Kindle it would presumably still be possible, for those who object to that, to borrow in the existing way by downloading the ePub via ADE.