I have a 1st generation iPod Touch, and I've read a number of books on it using Stanza and the Kindle application. My understanding is that the current version has a comparable screen size with much better resolution, so it should only be improved.
Stanza in particular has lots of customizing options in terms of font size and text and background color. I find that for text only, and particularly for "light" reading, the iPod works great. For books that require more concentration, I find my concentration broken by the need to frequently swipe to the next page much more often then I'd have to turn a physical page or change screens on a larger device. I have one book that I tried on the iPod, but stopped and am saving it for when I have an iPad. But for casual, pleasure reading, I find the iPod Touch perfectly functional. While a bigger screen might be nice, then it wouldn't fit in my pocket, so I'd have it on hand in fewer situations. Once upon a time I always traveled with a book. I had gotten out of that habit for a while as I tried to pare down the number of items I was taking with me everywhere, but now I can travel with 50 books on me at all times with less bulk then the one book I used to carry. I like it just fine.
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