Libraries serviced by Overdrive will be able to use Kindles for e-book check outs by September. Currently, Overdrive supports Nook, Ipods, Ipads, Iphones, Literati, Blackberry, etc. Actually, you could pretty much say Overdrive library service supports everything but Kindle right now.
If you are interested in using it with a library service, I would check localy before I invested. I'm sure other services exist even though Overdrive is the most popular.
As for the free books Amazon offers on Kindle, most if not all area available from the Gutenberg project for any e-reader or PC for that matter.