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It does not read EPub, but those can be converted using calibre if they do not have a DRM on them. It does read PDF's. I have never used the PDF feature so I cannot say how well that works.
You are not locked into the Amazon store. If you check the Kindle boards here you will find that there are many book stores that sell books that can be loaded onto the Kindle. Either they have already been convereted to a mobi format or are in an un-DRMed EPub format and convereted to Mobi.
You can also use feedbooks and Guttenburg to download the books that are no longer copyrighted.
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