There is no comparison between reading an eBook on a small portable device like an iPod Touch or a Palm handheld and a true, dedicated eBook reader like the Kindle. The most significant difference is the technology used in the screens: the former use LCD screens, the latter use a relatively new technology called E-Ink.
LCD screens, which are backlit, are tiring to look at for extended periods of time. E-Ink, however, uses a technology that mimics paper. It is much less fatiguing on the eyes.
I’ve had a Sony PRS-500 for almost 2 years now (the E-Ink tech has improved with newer models). Of the last 40 or so books I’ve read, around 25 were read on my Sony Reader. I’ve also read around 2–3 books on my Palm T/X and the experience is 100x better on an E-Ink screen. The strongest argument that can be made for an E-Ink screen is that it feels like you’re reading from a book.
As for the Sony Reader vs Amazon Kindle issue, it’s a question of personal choice. The Kindle’s keyboard, WhisperNet wireless technology for downloading books and internet access are all great features, but overkill for me. I don’t mind hooking my Sony Reader up to the computer and moving books over. Also, the lack of a wireless technology means longer battery life; I usually go as long as three weeks between charges!
Besides all of the above, I have a personal issue with Amazon’s relatively recent actions concerning deleting books remotely on their customer’s Kindles. Because of that, I don’t see myself ever owning a Kindle, no matter how superior the features.
When it comes to content, there are many sources for free eBooks that have passed into the public domain, with Project Gutenberg being the most popular. There are also plenty of illicit sources for eBooks, if you know where to look. Both the Sony Reader and the Kindle have communities of supporters at places like mobileread.com. I’m only familiar with the development scene for Sony’s products, but I can tell you that there are plenty of free, open-source programs for converting a variety of formats into a format you can read on the Sony Reader. You’ll need a program to convert PDF files because’s Sony’s built-in converter isn’t quite so good (the same for the Kindle, I think).
In any case, don’t listen to anyone who tells you not to get an eBook reader, especially if you’re a regular reader and carry books with you everywhere. You will not regret it.