I have both the Kindle 2 (my wife's) and 3 (mine).
The Kindle 3 shows Cyrillic just fine. The Kindle 2 doesn't
Why Amazon doesn't fix the Kindle 2 so it can too, is beyond me. A simple firmware update should be able to fix it.
If their consideration is just the money, well, they might get a few Kindle 2 owners to uprgrade to a Kindle 3, but they will lose many more potential customers simply by the rumors that Kindle can't display cyrillics...
Apparently there is a
font hack, I will try it now...
UPDATE: I used
this post instead, it worked very nicely. Our Kindle2 now displays Cyrillic fine, both in the book list and in the books themselves.