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I read through all 7 pages of comments up to this point and was surprised that no one mentioned the key advantage of epub over all other formats:
It doesn't belong to anyone.
Sony has lrf, Microsoft has lit, Amazon has mobi, etc., and although the formats have advantages and disadvantages, the biggest disadvantage is that they're all different. Want Sony to support mobi? Good luck!
The advantage of epub is that no one owns it, which means everyone can adopt it. Granted, some things (like DRM) may still be vender-specific. But just adopting epub demonstrates that a vendor is interested in interoperability. I'm sure that there will eventually be some consensus on DRM as well, for those who still cling to it.
On PDF vs. epub... As everyone has already said, PDF is unmatched for documents in which layout is supremely important. For any other kind of document, a reflowable format is needed; and right now, epub is the best open standard for this.
Despite epub's shortcomings, the nice thing about open standards is that they can be revised to include more features. I'm sure we'll see epub 5.0 at some point.
Finally, I want to mention one niche issue which no one has discussed: equations.
The concept of e-textbooks is becoming quite popular, and there's no way to do that without equations. Mobipocket support for equations is basically nonexistent, except as inline graphics, and it doesn't support fonts, which makes any but the simplest math equations impossible anyway. If you have ever bought a math-based book from Amazon, you'll see how horrible it can be. I can't speak for other formats on this subject, however.
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