I have an orginal nook and I'm able to use the dictionary with sideloaded non-drmed ePubs without a problem.
That being said--as I posted before, I have an original nook and a Sony 650--the dictionary on the 650 is far, far superior to the nook's. In fact, in July I decided to upgrade to a nook from a Sony 505. One of the main reasons behind that was to have a dictionary available on my device. After using the nook, I realized that the dictionary access was so cumbersome I ended up rarely using it.
Then, Sony released it's new line of readers. Even though my nook was fairly new, I bit the bullet and upgraded to the Sony. And I don't have any regrets. The dictionary on the Sony is simply awesome. Love being able to just double tap a word to get a quick definition--and if I want more detail I can easily bring the dictionary up full screen. I love the fact that I can scroll backwards and forwards through the words in the dictionary on the Sony as well. On the nook if you don't spell a word exactly right, an annoying message will pop up--something like "Word not found".
All in all, both are great readers, but I much prefer the Sony interface to the original nook. Especially where the dictionary is concerned.
dordale