I'm in a similar situation to ChrisI -- bought the Reader last Dec. Bought my $50 in books from Sony and not once since. I've downloaded and converted lots of books from Baen and other free sources (e.g. Gutenberg). I've also be re-reading a lot of series from start to end and have acquired from shadier sources e-copies of physical books I own.
I also use my Garmin iQue to do a lot of reading (backlist LCD is good for low light situations) and have bought a number of books from eReader.com -- mostly when they are having a special or a deal on a "bundle"
My philosophy for physical books was: there are some authors I really enjoy and will re-read the books many times over the years. Those I would buy in hardback. Everything else was paperback (or from the local library). The Kindle prices are close enough to paperback that I'm toying with switching -- that $10 is a magic number for me
What I really want is an e-library -- I would pay a reasonable subscription ($10/mo?) and could download a fixed number of books (3 or 4) that would expire after a month. When I deleted one from my reader I could download another. Sort of the Netflix model. If Amazon went that way with the Kindle I'd buy it in a second.
Thinking about it, I guess I feel I don't "own" e-books, I'm just borrowing them, so I'm not willing to pay anything near the list price of the physical book. And I think that is maybe the big problem with ereaders as a class reaching a wider audience. I don't mind hearing a CD again I just listened to last month, but there aren't too many books I want to re-read every month. Sony is treating books like music -- so is Amazon, but I have higher hopes that they will "see the light"