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Amazon should at least add ePub to the list of formats that can be converted to mobi via the @kindle.com conversion service.
Amazon licenses the Adobe Mobile Reader SDK for Kindle's PDF viewing features. The SDK also handles ePub. So they could add native support to Kindle for non-DRM ePub that way; or they could take the ePub code from Stanza (Amazon owns Lexcycle) and port that to Kindle.
For the library stuff, they need to get Kindle DRM mobi supported by OverDrive. Mobipocket DRM already is, Amazon owns Mobipocket, and evidently you can borrow this content, flip one bit, read it on a Kindle, and when the lending period is up, it disappears. So it doesn't seem there's much technically that needs to happen to allow library borrowing. It's 'just' a matter of contracts with OD and publishers.
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