I have this problem as well. The only solution I've found is to do a factory reset. Then it will work again for a couple of months or so, before the dictionary starts to get slow and erratic, and then starts to freeze the device every time. I don't know if the reformatting/repartioning solution will prove more enduring?
After the factory reset I must copy the books to the device "fresh" from Calibre, however. When I tried to copy books with annotations from the horrible Sony Reader software, the dictionary continued to freeze.