Speaking as a customer (reader) here's my $0.02. Note that I don't use a dedicated reading device, but read on a variety of devices.
1) Different formats for ebooks and the tradeoffs
a) best for reading: MS .lit - unfortunately, MS Reader is moribund and unsupported.
b) best DRMed format: .prc/.mobi is simple, compact, and almost universally usable. Also very good non-DRM.
c) best non-DRM: .rtf - same virtues as .prc, a little larger, and much more flexible
d) other useable formats: eReader, PalmDoc, tagged PDF with very plain settings and no ligatures
3) DRM and the problems of using it
I don't - personal policy. It's too much trouble and potential data loss. If you DRM your books, I won't be a customer. Sorry.
The other issues are author-specific, and as a courtesy to the Western canon, I've never published any of my fiction.
As an aside, I buy mostly from Fictionwise and Baen, but have no particular axe to grind against other commercial sites. Some work well, some work less well. I'd suggest authors have any free content available on their web site, to eliminate certain kinds of infrastructure hassles that can annoy customers. I'd also suggest you be careful with free content. If you give it to me for nothing, I'll gladly take it, but I may not buy anything else, even if I like your work. This is simply because the next guy is also offering free stuff that takes up my time. I have to really like your work to go back and buy the next novel you have for sale.