I have been reading books using Aldiko on my original Droid (3.8" screen) for just over a year, and loved it (before that, I used an HTC Touch, with a 2.8" screen). And when my contract runs out, I want a Droid X-sized screen!
However, I just broke down and purchased a Kindle 3. We're taking a cruise next week and will be spending a lot of time in the sun. Even if I could view the Droid screen on teh beach (doubtful), the battery wouldn't last a few hours with the screen on.
As eagerly as I await convergence, I think e-ink will be around for a few more years, at least until there's a dramatic improvement in battery life (days of use the screen being on, not hours) and LCD/AMOLED screens are easy to read in sunlight.