I am about as worried about the Amazon Kindle Lending Library as I would be if a guy set up a box of worn paperbacks outside the library entrance and offered to lend them to people for $ 1 as they where passing by. Sure, some would probably take him up on the offer. But as a threat to the librarian, nah. The Kindle lending library is a way for amazon to try to sweeten an already bad tasting deal. For most americans I think that the Amazon Prime is just a bit too much. Sure, you get free transport of anything you buy, and access to special stuff. But it is a lock-in that in my opinion costs more than it tastes for most people. It is a niche product for already heavy Amazon users. The so called Kindle Library is NOT a library service in any way.
The public library offers something completely different to its community. Something Amazon never can match. Local knowledge, a way longer tail that Amazon, and a commitment to the community.