[EDIT: the inline image tag doesn't seem to be working, so I attached the images...]
I've been reading this thread with interest. I have owned a PRS-500 nearly since its release, and just upgraded to the 505 (after the Kindle announcement, so I knew what I was doing).
For me, book reading is an immersive experience. I don't want any device to distract me from the altered state I achieve in a book. Paper books themselves can distract, if they are not printed well, or are improperly sized for the content, etc.
While I loved the technical properties and the aesthetic of the PRS-500, I found a couple of things that made it a constant distraction. First was the contrast issue. It was just too hard to read unless I got the light just so. Of course, daylight was wonderful, but I don't usually read outdoors. (Nature being one of those unwanted distractions I mentioned.)
The second issue was the PRS-500's tendency to leave ghost images when the page was turned. To me this was incredibly distracting and annoying.
When I first got my hands on the PRS-505 I knew it was the solution for me. Contrast is now high enough that I can read in most places I could read a paper book. The 20% improvement figure does not give a fair representation of the magnitude of the difference between the two products. There is a threshold that was crossed, and that makes the 505 just work.
Ghosting is gone too. I have attached comparisons between the 500 and the 505, showing both the contrast and ghosting problem.
I do not have a Kindle, so I cannot do a side-by-side comparison. But, if the Kindle does not have the contrast and lack of ghosting of the 505, it is not for me.
I've also puzzled over the complaint on this thread about a replaceable battery. The battery lasts so long on the Sony (either one) that it is just not a factor in its use. I eventually get back to a power supply, and can charge it. Of course, with the Kindle, power is much more of an issue. But for the Sony, the battery is one of those things that just doesn't distract. (I don't worry about termites with my paper books either.
To the poster who said they needed the ability to make an impulse buy (citing impulses received in the bathroom, of all places) I just have to state that this doesn't seem like a practical limit in general use. As I said before, when I read, I want to be immersed. Impulses have no place there. The Kindle, with its plethora of options (browse the bookstore, Wikipedia, etc.), itself becomes a distraction.
I don't even have to mention how distracting an undesirable page turn is to me. The Kindle loses on this front, if other reviews are true (I don't have one, I can't say for myself.)
To each his own, but for me, I'll stick with the Sony.