I do not have that issue on my iriver Story. Do you get this problem for all the books you view or just one specific book? Have you tried different types (PDF, EPUB or TXT) to see if you get the issue with all formats? Do you get the same problem if you change the size with the magnifying glass on the keyboard?
In the new firmware (v1.61) they have added support for dithering. You can try to turn that off or on and see if you get any difference.