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That's two different markets that are mostly separate. Except maybe for the occasional errorneous purchase.
I agree with your suggestion, at least partly. Even the K4 is probably not a good device to read PDFs. The iPad, of course, is. As is the Kindle Fire HD. Not sure about the non-HD versions, but the valid comparison is iPad vs Fire, not iPad vs e-ink device. The latter is comparing a motorbike to a bicycle. Yes, it is faster.
Probably I should not start discussing this, but I strongly disagree with the ranting. E-readers are as cheap toys as are tablets (yes, even the shiny polished ones). They have a certain focus, that's right. And of course, yes, bestsellers are read on them.
That stance toward "seriousness" of reading, quality of the user interface - I'll ignore that for the better of the discussion.
A last point about reflowing a PDF: You're a bit wrong on that, as e.g. k2pdfopt is a reflower that is based on optical heuristics and will reflow the PDF on a bitmap basis. No OCR step needed in that case. Whether you're happy with the outcome I don't know - you do not seem to have tried it yet.
As for your technical hypothesis why PDF is worse on Paperwhite - I tend to see it unfounded. A general argument against it is the KDX, which has K3 equivalent PDF rendering without major problems. It's probably simply the handling of alpha channels and grey levels in the PDF rendering engine of the KPW. As for missing letters - in most cases the PDFs are faulty. PDF is a complex format and I've seen horribly generated ones. It often manifests in things like missing letters or "moved" letters. Encoding errors, broken included fonts - all that stuff.
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