I think CHM would make a great eBook format. The nice thing about it is that it is reflowable... it also contains contents and indexs, etc. Of course, there is no DRM version of this.
I can't see these readers doing very well without support for some type of DRM scheme. Mobipocket seems to be the best choice.
Of course, if as people think that you can install WinCe versions of readers on this device that may be the answer. Then again, I wonder if they don't really mean WinCE but Windows Embedded CE... which really means it won't just run and Windows CE app on it ( I think. MS's branding on this has always been confusing).