i have an LG Viewty which can read books packaged in java apps from the site
http://www.booksinmyphone.com/. i don't have much experience with this method of reading ; i installed a few books about 2 years ago, because at the time the only dedicated device i had was an ebookwise, which weighs about half my weight and therefore never left home with me. my cellphone was small, light, and always in my bag so it was a good backup for métro rides. however, now that i have a sony, i carry that around with me and it's very rare that i end up reading on my telephone these days.
personally, i found the experience only partially satisfactory. it was nice to know i had a selection of books always available to me whatever the circumstances. however the interface was not as comfortable as i would have liked, and the tiny screen made it sometimes hard to immerse myself in the story (i tried reading moby dick on it, and discovered that it's not easy to get lost in the story when one sentence sometimes spans 2 screens worth of text ; it was frustrating to try to take in this epic text broken down into tiny blocks). personally, except possibly for very simple texts, i think i need a larger display so that the text has more room to "spread out" and breathe.
on the other hand, i've seen stanza on an iphone and it's esthetically a LOT nicer than the very basic txt display of the .jars i have, plus i think the screen is a bit larger. i don't have enough experience with it to know whether it would make much of a difference to me, but i suspect that the reading experience would be at least marginally better, maybe significantly better.
i do agree that the ubiquity of cellphones makes them a good first device or backup device, and i also think that a lot of casual readers who might not see the point in investing in a dedicated device will nonetheless be perfectly happy to use stanza or aldiko (or whatever) to read a book now and then on their phone, which will certainly help with the democratisation of ebooks, and their popularisation.
i imagine that the best way to encourage reading on these devices is first, to make it easy and accessible ; stanza and aldiko with their connection to opds catalogues are an excellent example. make the interface simple and as attractive as possible, and most importantly, make content available, easy to find, easy to get onto the phone (i admit i struggled a bit getting the java apps installed), and get the word out. i wouldn't be surprised if many people don't read on their cellphones mainly because they have no idea they could, or where / how to get books.