I think there's a point here that's worth echoing. Most of us on this site read a lot--I mean, why else would be be at MobileRead.com? Because we read and we're mobile, right? But lots of people don't read much. I think there is a market for the pure reader, but I think most reading will be done on multifunction devices. I love my eBookWise, but I read at least as much on my Palm. Why? Because I have my Palm with me all the time--I use it for other things (and it can fit in my pocket).
Some people won't read no matter what we do, but if we make it easy for them, there's a chance to get them reading. I think easy means low cost of entry--and a $350 reader is not that.