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A couple of points.
Yes, you can burn protected-AAC files you purchase on iTunes to a CD and re-import them as MP3. However, you are re-encoding an encoded file, so the sound quality takes a hit. In addition, the sound you get off an uncompressed compact disc is superior to what you get in a 128 kbps file.
Apple is in a strange place; in some ways they are far more open and less proprietary than the have in the past (a lot of the components of a Mac are off-the-shelf compared to their pre-iMac days, for instance). But Apple does use the FairPlay DRM scheme as a customer lock-in method, which is why they indulged in such ridiculous hyperbole against the proposed French DRM laws ("state sponsored piracy" it was not!).
But to say "iPods never matched Creative's exellent mp3 products in ease of use or power" is absurd. That is, of course, why Apple dominates the digital music player market, and why Creative has sunk millions into its marketing "war" and has practically nothing to show for it. Apple is not a computer company; they are a consumer electronics company that happens to make computer products. They understand consumer electronics in a way that very few other technology companies do.
I don't see Apple doing anything with this aside from piling it on as another 'feature' (as they did with photos and videos, neither of which I think the iPod does terribly well). A lot of people like to bring up the ghost of the Newton, but remember that Jobs killed the Newton and Apple has produced nothing like it since. The iPod would not make any better a reading device than a Palm or Pocket PC, and sales of those devices as electronic reading devices has not exactly set the market aflame.
Will the Sony reader succeed? I don't know, but I am not optimistic. I still think that most of the reading public will see a $350 reading device as taking away $350 they could spend on books instead, and Sony still has plenty of time to shoot themselves in the foot in the manner they have become so adept at these last few years. (The not-yet roll-out of the PlayStation 3 and Blu-Ray products aren't going so hot either, and if I were Sony I'd sure as hell be putting more resources and effort into those products than the Reader.)
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