I thought long and hard about which e-reader to get, but was surprised by my wife with a Kindle 3 for Christmas.
My problem with reading on a phone is twofold. 1, the back light problem. 2, the screen is just too small; I would be constantly be flipping pages.
The Kindle has a web browser and MP3 player in it's experimental menu. Not terrible, but I use it strictly as an e-reader. It's PDF capabilities could use improvement, but that may just be that the PDF's I've looked at were not constructed with 508 accessibility. Caliber, a free utility, will convert all formats, so that's not really an issue. So far, I've been happy with it. I think everyone who has a device gets used to it and prefers it over time. I must say I never thought I use the thing as often as I have. E-readers are really quite convenient.