Did you read the posts about using Overdrive library system? Do you have Windows Media Player version 10 or 11?
I asked the same question but had not tried MTP mode in the USB choices. Once I switched the USB mode to MTP, everything worked. Is your Clip the original or Clip+? There shouldn’t be a problem since they are both listed on the Overdrive Media Console as acceptable. Here’s advice from jj2me that helped me:
"Re: Using Overdrive (library system) and audiobooks
12-13-2011 07:26 AM - last edited on 12-13-2011 07:28 AM
I’ve never heard of this problem. A digital rights management error might occur if you didn’t have Windows Media Player v9 or above installed, or didn’t load with a program that ties into WMP9+ (like doing drag-and-drop directly to your player). But you’ve experienced a mix of good and bad–very odd.
The Clip/Fuze players are great with audiobooks. Did you do the following?
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Load audiobook onto player using PC’s OverDrive Media Console program?
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Have WMP9+ installed (this secures the rights for the player, indirectly through a call to it by OverDrive Media Console)?
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During the OverDrive Transfer sequence, clicked on “Advanced Options…” and then ensure the book parts get put in \Audiobooks.… rather than the default location \Music.… ? (This ensures you get the great resume function, not only for the last listened-to audiobook like your Nano Plus does, but also if you leave and listen to other content, it’ll remember your place in every audiobook and podcast.)
Step 3 has nothing to do with your problem, but it’s what we all have to do to get the resume function.
Step 1 could also be accomplised by loading via WMP, but most don’t do it that way (I’ve never tried)."
Maybe you need the WMP v. 10+ to help secure the rights for the player. Another post mentioned I needed v. 10 or 11 and MTP mode to have the audiobook work properly.