Welcome to MobileRead, 6charlong! Nice first post!
I can't speak for Sony, obviously, and I haven't the slightest idea what they're thinking is in regard to not releasing their conversion tools (what you're saying makes sense to me, 6charlong), but I can take a guess at one thing, the bit about a supply of books.
They're aware that
Project Gutenberg exists (if I recall correctly from when I talked with them at the
Blogger's Day and the
Texas Book Festival), and they're further aware that
ManyBooks does a Sony LRF format of PG texts (in fact, encouraged them to point out the existence of those sites on their packaging!). So I think it's a safe guess that they would consider those as an available pool of books, especially as the Reader takes RTF files.
Additionally, they do have their own store: the
Connect Store may still be relatively small in content, and the Connect Software still has ... lots of room for improvement, shall we say? But they are actively working on a pool of
new material.
If they did release their conversion tools, which I'd personally love and applaud, then all that would really do is allow the hoards of users to effectively replicate PG in LRF format ... which is already happening over at ManyBooks.net on an automated basis.
Then again, there's the (strong) possibility that the tools they use might be way on the "not" side of "user-friendly" (as such internal tools often tend to be) and as such their release would be less help than hindrance. However, they
could release a full set of the specs (they have already released a goodly portion of them) so that those making their own homebrew (and very full-featured) conversion tools could jump through
all the hoops that much more efficiently.