I've also run into this problem. I can borrow ebooks from the Boston Public Library (overdrive.bpl.org) in both pdf and epub formats. However, when I download the files onto my PRS-505 I can either read the pdfs and the epubs are restricted, or vice versa. I think whichever filetype I transfer to the device first "wins".
Just to be clear, all of the ebooks are coming from the same source. And I can read the material with no problem in both the Sony reader software and Adobe Digital Editions.
Unfortunately I haven't been able to work through the problem, and I too would be *really* interested if anyone has a solution.
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