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Update is here
Looks like sony released new firmware on 7/24/08:
This utility updates the Sony Reader (PRS-505) system software to version 1.1.00.18040 and provides the following benefits:
Support for EPUB file format
Support for Adobe® Digital Editions 1.5 or later and Adobe DRM-protected content
Note: Requires installation of, and authorization with, Adobe Digital Editions 1.5 or later.
Enables text within PDF eBooks to be "reflowed". This will enlarge the text and improve the readability of text-based PDF’s
Support for SDHC memory cards that have a capacity of more than 4 GB
Delete eBooks directly on device
General fixes to improve stability and performance
Download through the Reader Application or from the website
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