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I convert all of my LIT files to LRF using Book Designer, haven't had it crash on me either (if you're using Vista, that's a whole nother can 'o worms. I'm a CS guy as well and I think Vista is just a big ol turd that's more of a pain than it's proven worth yet, and that's coming from an early adopter). Anyway, moving on to PDF files... there are two good tools you can find in this forum: PDFRasterfarian and PDFRead, I personally haven't tried PDFRead yet, but many have and it appears they both do a great job of putting readable PDF's on your Reader. You can always try extracting the text from your PDF's and converting that to LRF (it's a more efficient format for the Reader).
There's a pretty good little tut for using BD, so give that a try (or use the built-in tut) it's well worth the effort and won't take long. If you're concerned about batch conversion, I think you can do use scripts with BD to process a bunch of LIT's. You can also batch-process PDF's in PDFRead.
Not sure about the legality of d/l'ing digital versions of PB's that you own, perhaps someone in the legal world can tackle this question (or someone who wants to put time into researching that question).
Bottom Line: The Reader was made to support RTF, TXT, LRF, and basic PDF functionality; though Sony wants to sell from their marketplace so it supports LRF best. The average consumer buying the Reader will either buy books from Connect or get the freely available public-domain books that have already been converted to LRF-format, so they won't think the Reader's a PITA that others trying to convert from other non-Reader formats.
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