The best e-book reader for iPhone right now is
Stanza. In terms of the nice
display of e-books, I also very much appreciate
Apabi Reader (however, it lacks the crucial annotations feature).
Note: Stanza is currently crippleware (thank you, Amazon). However, even a partly dysfunctional Stanza is
way better than the primitive Kindle and iBooks apps. So, I continue using Stanza on the iPhone on a daily basis for now.
And here is the good news: the best iOS e-reader of all,
Marvin, will pretty soon be coming to the iPhone, and will include iCloud syncing with its fabulous iPad version. We'll just need to be patient for a few more months.