I just confronted this question myself two days ago. I lost my Kindle 3 and was going to the store to replace it with another Kindle 3... and then I decided to have a look around. I tried the new nook touch and was not impressed. It was a bit slow and poky, awkwardly shaped and just generally not well thought out IMO, just like all of the nooks.
Ruled that out, then went to BestBuy to get a Kindle 15 minutes before closing. On my way to the register, Kindle in hand, I caught glimpse of the Sony Reader Pocket PRC-350. It was on sale for $120 down from $179. I tried it out and loved it immediately. Sharper, clearer e-ink screen than anything else I've seen. The interface is great, much more fluid and sensible than either Kindle or nook by far. The touch screen works brilliantly. Build quality is top notch and the tiny form factor is just great. It literally fits in a (big) pocket. No way a Kindle or nook would.
So I went with the Sony and I've been delighted with it so far. The size is just awesome and it's very pleasant to turn pages with a swipe of the finger instead of clicking buttons. I don't miss the wifi or 3G one bit. It's no problem to sideload books and the lack of 3G actually keeps me from some impulse buys that don't always turn out great.
I can't recommend the PRS-350 enough. The Kindle3 is excellent too, but for the, the pocket reader just hits the mark perfectly.
IMO Barnes & Noble need to go back to the drawing board on all the nook models. From the buggy, slow color strip navigation model to the pared down basic nook, to the "iPad killer" nook color. I just don't see evidence of good design there. At least the nook color is responsive, I guess you can say that for it. Would be nice for color magazines like Nat Geographic. Thats about it though. Kindle is much more functionally sound IMO, and the Sony is a few orders of magnitude beyond that. Clear evidence that Sony is not an amateur or new upstart to small electronics. They know what they're doing and it shows.
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