@Larryjr: I assume you mean when you started the device it asked you to do the setup. This can be done either via WiFi or the Kobo desktop application. Neither should cause the device to hang. And, when it does, you can usually recover by doing a factory reset. But, that would put you back to the point where you need to do the setup.
You can avoid the firmware upgrade by deleting the firmware files before disconnecting from the PC. What you do is let the desktop application do the setup and download the firmware. When it says that it is finished and you can eject the device, before you do, you delete the firmware update files. This will leave the device on the factory firmware. If you want to do this, these files are in the ".kobo" directory on the device. You need to remove the files "KoboRoot.tgz" and "manifest.md5sum" and the directory "upgrade".
But, what you describe suggests there is another problem. I would recommend trying a different SD card. If this is failing, it could give the symptoms you are seeing. The card in the device is either 2GB or 4GB. You can use a larger card with no problems. I did this for my Glo last year. It was giving me all sorts of problems, and since I replaced the card, it has been running with no problems.
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