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The image size in eReader is limited, which isn't a notable problem on a 3" screen but can be trouble for a 6" screen that can show a lot more content. It's possible the image limitation is a PalmOS limit, and wouldn't matter to other devices--but anyone who tried to market eReader ebooks that didn't work on PalmOS devices would crash hard; that's the OS the program was designed for.
It also has trouble with tables and other complex formatting, and AFAIK doesn't allow for font adjustments--those are handled by the device, not set into the file. (Not a problem on PalmOS devices, but not preferred for larger ebook readers.)
Most books currently formatted for eReader are set with no indents and spaces between paragraphs--convenient on a tiny scrolling screen; annoying to many people on a larger one. So if it caught on, there'd be a lot of people dissatisfied with what's currently available.
The DRM is troublesome for many ebook readers; while it's less invasive than most (no special software, just input your credit card number the first time you open the book on a device), there's no "input data" function on a lot of current ebook readers.
I love eReader, but acknowledge its limitations. It's terrific for reading text-only content like novels, and has problems with anything else--image-heavy files (no way to wrap text around images IIRC, no large images), files with complex formatting (tables, columns), anything with nonstandard fonts.
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