Your two choices are basically LRF and ePub
ePub is an industry standard which works on many different devices. However, the Sony's implementation of it (even on the newer devices) is rather "long in the tooth" and it doesn't support a number of ePub features, such as fully-justified text.
LRF is a Sony-specific format, and looks very good on the Reader. It has full justification, but obviously is not usable on any device other than a Sony.
I guess I'd sum it up by saying that if you plan to stick with Sony, and want the best results, use LRF. If you can put up with the current limitations of ePub on the Sony (or hope that Sony will eventually fix them), then go with ePub.
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