Amazon's Kindle forums are aflutter as a few users are now seeing that the promised library lending feature for Kindle is live in some areas -- Seattle at the very least. Amazon announced in April that it would be bringing the service, but since then has stayed quiet besides posting an information page detailing how the lending would work. If you're not familiar with how Amazon intends to handle ebook lending, here's the short version: your local library has a limited number of licenses for ebooks, which you can borrow for a set period of time; the service will be US-only. You'll also need to download the books over Wi-Fi or over USB, as it won't work over 3G if your Kindle supports it.
It appears that rather than using the popular ePub format, Amazon is instead going with its own AZW format. As with other systems, lending is managed by OverDrive, which lists all Kindle models with "Beta" support. As of right now, we've only seen support for Kindle lending at the Seattle and King County Public Libraries and there are already reports of library books being successfully downloaded (and some of them failing). Presumably we can expect something more official from Amazon in the near future, but feel free to check your own and let us know in the comments if it's live for you.
Source: Seattle Public Library, King County Public Library, Amazon forums; via The eBook Reader