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You can use the iPhone as a bookreader, but currently you're very restricted as to the formats it'll supports - basically text and PDF.
If you're buying a phone with the specific intention of using it as a bookreader, a Windows Smartphone will give you a lot more flexibility - you can install applications on it to read pretty much any eBook format.
The iPhone is a good device (I have an iPod Touch, which is an "iPhone without the phone"), but I don't think it makes a particularly good book reader. It's great for many other things, of course.
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