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The Kobo is a good choice for you -- it's available locally from a real bricks and mortar store and sold by a Canadian (woman) entrepreneur who makes a great role model for a young person.
Yes, it works easily with the public library using Overdrive. I have that working with the Toronto Public Library. The instructions could be clearer ... but it works fine. If you got that working for the Sony you already have, you should be fine with Kobo.
You could remove all the books that come pre-loaded ... they are all public domain and could be added in again, for free, later, from sources like ... mobileread and Project Gutenberg. Plus -- although I haven't checked every one -- you ought to be able to download ALL the 100 titles directly from the Kobo bookstore, for free. That is the source of these, after all.
What I really like about the Kobo is, at the price, it is a stripped down ereader that provides, well, reading, and nothing else. And nothing else to distract young minds: give her "Alice in Wonderland" or "Wizard of OZ" or whatever drives her interests and encourages her to read. What's that skill worth? Bells and whistles can come later.
The Kobo also comes with a one year warranty and I'd be willing to bet you'll find an easier exchange at Indigo -- a place that actually sells books -- than a Sony Style store or a Future Shop where selling 3D HDTVs is the focus of the business.
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