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I'm not an expert on the different formats, but I tend to stick with RTF for my non-DRM'd books. While it makes for a larger text file than LRF (I think), going back and fixing the formatting if anything is wrong is very easy, and I've never had any wonkiness with reading RTF files on the device.
One of the real advantages to LRF, though, if you use Calibre, is that you can put in a table of contents and title/author info at the top of each page, as well as other bells and whistles I haven't explored very deeply. If you just want to read the book, and don't want to fiddle around a lot, just stick with RTF.
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