Finally it is possible to read library books on your iOS device. This is one of the features I have been looking for for a long time. Please see the CNET link below.
http://reviews.cnet.com/8301-19512_7-20023016-233.html
I have tested it and it is actually easy to get library books onto the iphone. You can just email the .acsm file to your iphone and then say open in .. Bluefire Reader and it will download the file.
The formatting is not ideal on the iphone. It leaves too much space around the edges and I wish the page turn would be slow as a move so that I can finish the last words on a page while already seeing the next word on the upcoming page. But those are little issues that can be resolved in the future. It definitely makes the ipad and iphone the most versatile reader now.
Additionally together with txtr this is the second app that empowers international readers to purchase epub books and read them on their iOS device. txtr does not read library books though.