The OD integration works through the Kobo store. If the book in the library is not in the store, you won't be able to borrow it through the store, or have it automatically download when you borrow by other methods. There is also a related problem with the editions. If the book in the library is not the same as that in the store, it won't be borrowed as well. My understanding is that the match is on the ISBN in the two places. I believe you can raise a ticket with Kobo to fix the latter.
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