Did my kindle indeed lose all of my books?
Most likely, no. You'll be shocked to know that you are not alone. Many kindle users are finding themselves not able to way their books. This normally happens for one reason: Your Amazon list has been banned or suspended. If your list gets banned or suspended, you Will lose way to your e-books.
Kindle
Why would they hang or ban my account?
Do you buy other items on Amazon.com? Have you returned any items recently? If you answered yes to both of these questions, your list most likely has been suspended. It doesn't sound fair at all since the item you returned was probably defective or broken. Regardless, Amazon has the right (when you clicked "I Agree" to their terms) to do this and have been doing it.
It's not fair!
Believe me I agree. It doesn't seem right since you did Pay for the e-book. This has been the problem with Drm (Digital rights Material). In a sense you are just paying for a "service" not the actual book. It would seem that buying the actual book might be better, but those who love their kindle love it for a reason: functionality and convenience.
So Now What?
Call buyer Service. That's the only way. Once you get your Amazon list reinstated functionality will return.
My list isn't banned or suspended
If you checked and called buyer service to confirm your list is in good standing, then the problem most likely lies in the Kindle itself. Remember that this rarely ever happens and the loss of books normally ties in with your list itself. Keep in mind that returning a Kindle can throw you into this situation (as stated above). With that being said, return your Kindle Only if you feel it is the cause for your loss of functionality.
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