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There are plenty of people for whom reading on a smaller, multi-function device is perfectly acceptable and enjoyable to them (me included). It is already a huge market, especially in places where cellphones dominate personal electronics usage, like Japan. And as reading apps proliferate for smartphones, more people will discover the benefits to e-book reading on devices they already have.
The dedicated devices tend to "simulate" the experience of reading a printed book. This may be important to some people who grew up on printed books, or who desire to emulate the experience of reading bound books as much as possible; but I believe it will be less important of an experience over time, especially with the younger generations that are not locked into romantic, paper-based notions of what reading should be. They are the ones reading on smartphones and (gasp!) Blackberries, and not looking back to paper as a standard to hold reading up to.
Smartphones, PDAs and other hand-held multi-function devices will continue to be major markets for e-books, which is as it should be. Their ubiquity, portability and standardized operation will make them ideal for e-book reading for generations to come.
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