"I am having difficulty choosing a reader. I have enough money saved up for a Kindle 3G but I think I want a Sony PRS-650. I like the various formats that sony will read but I can't figure out if it is worth the extra $40."
It depends. Kindle is very nice hardware, but is not very useful for a large variety of formats. Other devices are better there.
"I want to be able to check books out from my library and..."
Kindle cannot do this.
"...download from other sources then Amazon. If I get other books not from Amazon, can I convert them to PDF and read it on the kindle? Can I convert epub books and other formats with Caliber? after DRM is removed. Can I use Caliber with a new kindle?"
In fact, you HAVE to strip DRM and convert to .mobi format for a Kindle. Calibre is one method. I recommend its Command Line Interface (CLI), rather than the Graphical User Interface (GUI). Personally, I'd convert to almost anything other than PDF, but that's a matter of taste.
"One thing I read about the Kindle is that Amazon keeps your books on their servers but can pull them when they choose. Is this still true? Can I keep the file on my home computer instead of Amazon's server?"
It is still true. You can keep copies on your personal computer, irrespective of Amazon.
"I also seem to see the difference between the two cheap ones is one has 3G access. Can I put an SD card in a kindle? I seem to be able to in a sony."
Kindle 3's have no SD card slot. Some Sonys do. I don't believe the bottom of the line Sony does.
Please do a little more research. If you need to read protected PDFs of technical papers, newspapers, comics or large format graphical content of any kind, you probably don't want a 5 or 6" e-reader. If you have specific formats you need to read, look for a reader that excels at that format. Kindles and Sonys (and Nooks and...) are made for the immersive reading of text, primarily fiction and expository non-fiction. If you need more than that, stick with some other kind of reading device (tablet, laptop, etc.)
Enjoy,
Jack Tingle
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