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One more time: You cannot use the "Download & transfer via USB" option unless you own an e-ink Kindle device. To get at your book files you must use Kindle for PC.
Make sure that you install Kindle for PC version 1.17. After installing immediately go into the "Tools", "Options..." menu and deselect the option to "Automatically install updates when they are available without asking me." Otherwise you will eventually be updated to version 1.19 and be back to having KFX files that you can't work with.
By default Kindle for PC places downloaded book files in the "My Kindle Content" folder within the main "Documents" folder for your account. The book files have names that end in ".azw".
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