I use my Touch as a reader, and like it very much. Some weeks I read several hours a day with it. I probably can read on it without pause for as long as I can read a physical book, and possibly longer.
It's not the same as reading a physical book, of course, but I've nonetheless found it a completely satisfying way of reading for pleasure. I don't find it very useful for reading reference works or textbooks where I might like to dog-ear and annotate and otherwise ruin my personal copy; while some readers offer some of these features, I find them so inferior to the handling afforded by a physical book that I really don't even try.
We used to own a Kindle, and it has since been given away. Both of us preferred our iThings (iPod Touch or iPhone) for reading. YOUR MILEAGE MAY VARY, lots of people seem to find the Kindle easier to read on.
iThing versus Kindle:
- self-illuminated vs. requiring room light
- need charging more often vs. Kindle needing charge perhaps 1x/week
- far faster page turning than Kindle
- higher contrast than Kindle
- much smaller screen than Kindle
- more choices of typefaces/sizes than Kindle (depending on which reader software you use)
- easier to hold in either hand without accidentally turning page
- some people find they feel less eye fatigue with Kindle, but we do not - we both prefer the higher contrast of the iThings.
For our eBook store we primarily use eReader.com, falling back to Kindle when we really want something that is not available on eReader. For software we of course use Kindle when we are reading a Kindle book, and my wife uses eReader for other books while I prefer Stanza. Stanza requires a couple extra steps to transfer an eReader.com title onto the device, but has some extra features that I like: a quick way of changing brightness within the app without going out to the control panel (very nice for nighttime reading), and more fine-grained control of type size. All three reader programs are free, so you can easily experiment and find what you want.