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As you said the Kindle doesn't display the PDFs in their native format. You (or Amazon) can convert them into the .AZW format but that format (on the Kindle) doesn't support any zooming of 'images' -- you can set the font size for text. However, Amazon does have another supported file format called Topaz that does provide for zoomable images, but the general public doesn't have access to the software to create Topaz files. Also the Kindle 2 is supposed to support zoomable images up to the size of the screen.
With all of that said, the size of the Kindle screen is simply too small to provide for a decent image of a PDF document. My advice is use the Kindle for reading regular books and wait for a better reader for PDF documents (or get an iRex).
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