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Even if PDF links worked on Kindle, you would still be better off using the mobi version there in most cases, when that format is available, since the text can get really small (though I own a couple of O'Reilly books that are only in PDF and can read them okay).
Better navigation is needed in any case. For example, O'Reilly should add 'back links' from chapter/section headings to jump to where they are referenced in TOC (even in PDF). Of course, since they are DRM free, you could add these yourself, probably even using a script.
In terms of reader software, they need ability to navigate viewing history (just as you can with a web browser) so you can jump around within a book, or from one book to another more easily. For example, iFlowReader (for iOS) has this feature, and I trust others will recognize the benefits of this and do something similar or improve on it.
Paper books are clearly superior if you are co-located with them, but you can't carry your entire library around with you, so there are definitely times when ebooks are more convenient - and they are certainly less expensive in most cases (at least O'Reilly titles are).
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