So far, we have Book.app getting re-written with the official SDK, MobiPocket announced a version, and I believe I read that FictionWise was looking at porting eReader. The SDK targets both the iPhone and iPod touch - which in reality make up a computing platform all their own - so I see no reason today why a book reader application would be iPhone specific.
In an episode of TWiT, Jerry Pournelle said that the ability to read electronic books
on a device people already own would be the death of the paperback book industry. (Emphasis mine, but it was his point.) People that aren't willing to spend $350 for a Kindle might end up buying an e-book for the iPhone they already have on them.
In addition, none of these potential solutions ties you to an iPhone as a reading device, whereas the Sony PRS and the Kindle do tie you to a one single physical device. What I mean by this is that you can't real BeB books on the Kindle, amz books on the Sony, or either on anything else, but those MobiPocket books or Palm Reader texts are readable on a variety of devices.
I don't see any reason why the experience of reading on the phone would be any different from reading on a Palm or Pocket PC device, except for having higher pixel density, more memory, and wi-fi built in.
I own a Kindle, a PRS-505, and an iPhone. (Okay, my wife stole the Sony and won't give it back, but that's another story

) I can see reading on the iPhone in certain situations where I wouldn't want to bring along the Kindle (waiting at the Dr's office, or lined up at the polls on election day - which is how I read a big chunk of "The Restaurant at the End of the Universe" and learned to despise Rosetta's lack of OCR proofreading).
The real kicker will be when books can interact with the phone's location awareness features. Imagine what this could do for things like the Frodor's travel guides.
I still believe that dedicated reader devices won't take off until some kind of subsidy model is used. $200 for a phone that does a whole bunch of other stuff is easier to swallow, because many people feel they need a phone. $350 for a book reader, not so much, when they can buy a paperback or a magazine for less than $10...especially in an economy lacking in consumer confidence.