Karen in LA tells me that many libraries in the US are offering free audiobook downloads. The files are available on the library webpage and, rather than "returns", the books are equipped with DRM that kills the file after a set period of time. Looks like this service is available in many libraries such as LA, Seattle, Boston, Milwaukee, Santa Monica, Michigan, Missouri, Illinois, Ohio, New York and Brooklyn. I'm also glad to see Jersey coming through with two programs. Since most libraries subscribe to Net Library or Overdrive, the offerings are pretty similar.
If your local library doesn't have this service, maybe you can convince them. But check the whole state - in some case, such as the Boston Public library, residency means living in the state, not the city. Also, very often you can pay a non-resident fee to gain access (such as $100 for the NYPL).
Unfortunately, you won't be able to play DRM protected .wav files on your iPod. But if you're hell-bent on it, there are options. Silent Bob is a program that converts any audio playing on your computer into mp3. The site is dead, but you will be able to find the program mirrored or on P2P if you look around. Audacity is another good free option, and many people like Audio Hijack or Tunebite. Of course, I'm not endorsing copyright infringement.
By the way, Learn Out Loud has their next free audiobook-of-the-month available. This month, it's the Tao Te Ching. See also Siddhartha from last month.