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If you buy in Microsoft (.LIT format), then you can use the program ConvertLit (very easy to use) to "explode" the file (explode because it becomes several files instead of just one), and then you'll find one of them is an html file that you can: open that file with MS Word and do a "save as" RTF (rich text format)*, or you can use another program like BookDesigner and convert it into several different formats (the special one the Sony Reader uses, LRF, or RTF again, etc.).
*Before saving you might want to clean it up a little, depending on how it looks. You can always load it into the Reader and see if it needs some extra formatting or not.
TXT is plain text format, which is the simplest format of them all, but it loses anything special, like bold lettering, italics, different font sizes for headings, etc.
If you go for using BookDesigner or something similar, there are many MobileReaders who can help you out with the process.
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