Harry, they are going to be used in an english reading educational effort. They want to distribute internally-created content (txt, html, pdf, and mobi) and licensed commercial content. The readers will be reportedly locked down and linked to a common acount so the State Department can remotely manage their content after the embassy libraries lend them out. TTS, 3G, and push content delivery are requirements.
Multi-function devices are contra-indicated given the focus and the intended use.
(They want users to read, not play games.)
This is also *not* a new effort but rather the latest phase of a multi-year effort that likely predates the iPad and ePub.
We've been discussing this over at Nate-the-great's if you're interested in the contracting issues:
http://www.the-digital-reader.com/20...-6600-kindles/
It is a very specific project and they've (wisely and cost-effectively) chose a very specific system. (And the bulk of the money in the system is *not* for hardware.)
Also of note: they are explictly asking for Kindles with front lights.