Here are my thoughts for those who end up having to do the Factory Default (reset):
reloading personal docs & samples via USB cable (backup of f:\kindle\documents), copy across in batches by date
(I carry 3 pages of Collections on my HOME screens, or about 750 books/documents)
Gradual loss in annoation performance: some rewrites were instant, but others sometimes froze the screen navigation for up to 3 minutes or longer.It is unclear from Amazon technical support whether the steady use of kindle annotations causes an accumulation of My Notes and Marks such that the annotation performance slows down. But if that is so, then annual or more frequent rebuilding the kindle\document files may be regarded as a periodic maintenance task. If that is so, then these are the steps to follow, along with cautions to bear in mind before executing the Factory Default.
1 Prepare for the worst (loosing all records and filenames, particularly personal documents loaded via USB cable rather than wirelessly)
2 Backup to PC all kindle materials from folders: DOCUMENTS, MUSIC, AUDIO (and if you manually created a PHOTOS folder).
3 You may wish to make screenshots of your named collections, too, just in case the auto-repopulation (re-register) fails to do this. Procedure: hold Shift+ALT + G in each screen you wish to save. Then copy or move the resulting GIF files from the kindle\documents folder over to PC.
4 Reset to factory defaults by HOME >Menu >Settings >MENU >Factory defaults
5 After all account data is obliterated and the kindle restarts, go to settings and re-register your account with Amazon (username + password)
6 If all goes well, your settings/preferences will reload and collections will reload as empty but labeled listings on the HOME screen
7 But you still need to go to SETTINGS and re-enter "Personal Information" if you want the device to reference your contact details
8 Now reload content and sort into your onboard collections: your Internet kindle archive will hold any personal documents loaded via wireless (wifi or 3G) as well as any kindle store titles you own (whether they be paid or bought for $0.00). The kindle menu for ARCHIVE lists titles: click to pull the file down to the kindle from the online storage. There is currently no batch process, so you need to select each title, one by one. In the case of personal files loaded onto the kindle\documents by using the USB cable, there should be no hinderance or delay: just select in a sincle swoop and copy what you earlier backed up on PC over to the kindle\documents folder via USB cable (TXT, PDF, MOBI, image files: gif, jpg and so on). In the event you backed up AZW content that comes from your archive/purchases, it may show up when you copy it via USB cable, but you can't open this because of DRM. Instead the dialogue box instructs you to delete and reload from MENU >ARCHIVE.
9 The case of sample chapters you may have gathered on your kindle is different to the ARCHIVE books that you own and personal documents backed up automatically when sent via wifi or 3G to the device. The "manage my kindle" has no record of samples transacted, but happily the samples included among the PC backup content can be directly reloaded to the kindle\documents.
=-=-=-=-=-= FINISHING UP
1 Comb through the rebuilt set of files using the File Explorer of the PC to which the Kindle is cabled with USB cord
2 Identify stray files inadvertently copied across (ones you meant to leave off this time, but somehow ended up with *mbp, *phl, *azw or azw1 files)
3 Sort by NAME to discover bundles of related files (as they should be: under the same filename, but different suffixes) & orphaned files to cull (above)
4 Delete these orphan files (detached from their full group of main + auxilliary files of same name, but different Filetype suffix)
5 Sort by TYPE to discover any GIF (screenshots), JPG, DOC, HTML and other filetypes that kindle can't read natively. Cull these.
6 Eject the kindle from PC then leave undisturbed so all newly added files can be automatically indexed (for kindle searchability): this could take hours
7 Force restart by sliding and holding the power button for 17 seconds and the screen goes blank, then come back on (rechecking of indexing performed)
8 One by one, open each "collection" and begin the slow process of adding individual files to that collection
Amazon should add functionality to make it easier to move from one kindle to another, or to do the Factory Default reset by enabling batch restore/reload of SAMPLES, of ARCHIVED titles (select all, then go back an uncheck the titles you wish not to reload in the one-touch, batch reloading).
=-=-=-=-=-= Final remedies
Telephone support could offer no further fix. So my choices are to buy a replacement at $85 or go on with the poor annotation performance (all other functions are fine). As a last ditch effort, I have set my user preferences to turn off the options: auto backup, popular highlights, view other highlights (those persons you may sign up "to follow")