Yes, you have understood the problem.
PDF describes the layout of each page, so however you view it, it looks the same. To see what it would look like on a 6" device, try printing a page of a PDF out so that it is a 6" diagonal, and print at 150 dpi as this is clsoest to the eink screen's 160dpi.
The iLiad has several features that make A4/Letter size PDFs bearable - an 8" screen (nearly twice the area and more pixels), the ability to zoom in to the page to remove the margins, and the ability to use the display in landscape mode and view the top and bottom halves of each page separately. By combining zoom and landscape mode you can view the PDF at the about 98% of the size originally intended.
Also, the iLiad has several user developed versions of the PDF viewer that have other options, column-wise viewing and gestures and the two that spring to mind.
Reflowable formats, such as text, html, mobipocket and CHM (AFAIK) are preferred on ebook readers because you can change the font size and the text just shuffles to fit the screen - think a wordprocessor when you change the font size, the same text still fits within the margins, but fills more or less pages than before.
Mobipocket format is supported on several devices, and the Mobipocket creator desktop software (Windows only) will convert some CHM files into mobi format. You can try this on a PC before buying a device. Head on over to the mobipocket website and download the
reader and creator software.