Let's give the iPhone software market to mature. I think we'll eventually see readers on the iPhone that can get access to and download free content from PG or even MR. Given that the SDK can be downloaded and accessed by anyone,maybe an industrious MR reader can do this?
I myself am planning on getting an iPhone (when my T-Mobile contract expires) and can't wait until I can read my classics while waiting in line or anywhere where I don't have access to my Reader. I have the Mobipocket reader for my Windows Smartphone and it's absolutely terrible.