Very odd! That's the exact version I have and it's working like a charm with iOS 5. (It's worked with all versions of it.)
I can only think of the usual trouble-shooting steps.
1. Shutting down the iPhone completely (power button until red shut off blurb comes up and does so).
2. Restart and see if that helps.
3. If not, make sure that you have a copy of eReader on your computer in a safe place. Its name is "eReader 2.1.3.ipa" Search for that and copy it to a folder out of harm's way.
4. Backup eReader's stuff manually (connect your iPhone via USB cable, then use Disk Aid or some other such program to copy all of eReader's stuff to a folder for safe-keeping). (You can skip this step if you don't have any books or bookmarks you want to save.)
5. Delete eReader from the iPhone.
6. Reinstall it.
7. Keep your fingers crossed and tap to open it.
8. If all goes well, it should work fine, but you won't have the books or bookmarks you had before.
9. Use Disk Aid to transfer its stuff-- everything but the app probably would work best--into its folder, overwriting what's there.
10. Launch again, and you should be back in business.