It is an LCD display, but not a "normal" one. It operates in two modes - as a conventional, backlit colour display OR in a direct-sunlight-readable, non-backlit, very low-power greyscale mode. This later would be excellent for a bookreader.
The main problems with the OLPC are that:
1. Most people can't buy them.
2. I don't know what, if any, book reading software exists for them.