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Epub works very well on the 360. It is the "standard" format at the moment, so you can get epub books at any bookstore except Amazon, who uses a form of mobi. If you use ADE, you can buy books from Sony and Barnes & Noble, Fictionwise, and many more. You can get public-domain books for free right here at MobileRead, and Project Gutenberg, and DRM-free books at Smashwords. There are loads of other sites, too. For me the biggest problem is finding time to read everything I find that I want to read.
The 360 will also read most formats as long as they are not DRM, but pdf does not work very well.
Just in case ADE and DRM make you say, "Huh? What?" ADE stands for Adobe Digital Editiions, and is software that lets you manage DRM'd epubs, downloading them from sellers, and transferring to your 360, etc. DRM is an anti-piracy "lock" that publishers use to dictate how you use your purchase. Both have been discussed extensively here, so I won't say any more than that. If you search here or Google, you will find all the information on ADE and DRM that you could ever want.
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