As I mentioned earlier there are a number of sources of free Kindle books. However, due to the copyright situation they tend to be predominately older books, and since they generally have to be manually converted, this mostly means "classics". Unsurprisingly, I find myself reading a lot less modern fiction and a lot more "literature". Recently, I've read Jack London's "The Scarlet Plague", Joseph Conrad's "The Heart of Darkness", "The Adventures of Sherlock Holmes", and "Brave New World" (I actually paid $0.99 for this at Amazon). I don't think I'm alone here, either: on a recent flight back from DC I noticed the guy next to me reading "Moby Dick" on his iPad.
1.My other big source of books was loaners from Kevin Dick, who is rather less cheap. Unfortunately, he bought a Kindle.
I prefer to think of our previous arrangement as I stored my books at your house :-)
I don't worry about the cost as much as you, but I noticed it changed my habits too. I'll peruse the specials in the Kindle store and have read a number of 99-cent titles that I otherwise wouldn't. I actually read Stieg's Girl with a Dragon Tattoo before everyone else because of such an offer.
Over the long term, this may make it easier for new authors to break into the mainstream. Offer your first book on Kindle for really cheap.
I also predict some sort of limited sharing model in the future. For example, you could designate three people as sharing capable for your library. This would lower the barrier for people like you to actually purchase books and tie people even more to a given platform. So revenues would increase and with almost zero marginal cost, profits would too.