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I'm pretty sure that Sony doesn't do their own book formatting and creation. The publishers end up paying for a third party to do that. Not sure about the new "Classics" stuff, though, that is at the Connect store and has been offered as part of the free e-books with Sony Reader purchases.
The amazing thing, though, is how well (and quickly) people at MR can prepare books for the Reader. If I were a publisher, I might be wondering if I was overpaying the third party companies for the work. If I were a 3rd party book preparer, I think I'd be considering whether purchase of BookDesigner and hiring vvv might be the most efficient approach. (Of course, that would be a loss for all of us, but we'd gladly wish vvv lots of success!)
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