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The 4th generation iPod Touch (and iPhone) both have a VERY high resolution screen, such that reading on them is no longer a strain. It is probably 90% as easy on the eyes as e-ink. Page turns are much faster, so the fact that you have to turn pages a bit more often is not an issue. The only real issue could be battery life. If you cannot charge it up every day or two, you may want to stick with a Kindle.
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Completely agree!
Since getting an iPhone 4 I have stopped using my Sony PRS600. I used to use the Sony everyday and thought it was great, but the iPhone with its portability, clear crisp screen and multiple functions is the clear winner for me.
For my reading app I use GoodReader. It's especially good with large PDFs that have been OCRed (contains real text, not just an image of the text). I found the Sony kind of useless with PDFs what with its sluggish screen, non permanent zoom, etc.