I just received my iLiad yesterday and love it!!!! In fact I'm going to need a coffee soon cause I stayed up way too late reading.
I had a spare Sandisk 4Gig SD card kicking around so I tried plugging it directly into the iLiad. As expected it didn't recognize the card. It did work when I used the card in a USB drive adaptor and plugged it into the iLiad's USB port. Not quite as convenient but it works for me.