Ebooks from Amazon in the Kindle format (AZW) can have their DRM removed, and then be converted to ePub or LRF that the Sony Reader can use.
Books bought from the Sony store can't be converted to any other format.
Books acquired from *other* sources online--like the free ones here at Mobileread, or bought from Fictionwise.com, or BooksOnBoard.com, can be either downloaded in different types for the different ebook readers, or converted from one type to another with the right kind of software. (What kind depends on the original ebook format, and what DRM, if any.) There are listings of
ebook stores and
free ebook sites in the wiki; you can get ebooks from a lot more places than Amazon and Sony.
The Sony will read Adobe Digital Editions ebooks in either ePub or PDF, and the LRF format. The Kindle will read AZW, and Mobi formats, although you'd have to take some steps to get DRM'd .mobi or .prc books from other sites, and you can send PDF (and maybe ePub) books to Amazon to have them converted. Neither ebook reader can use .LIT books, but they can be converted into formats that either could use.