You're probably best off with a Windows Mobile "Smartphone" if you want to use it as a bookreader. That will give you the choice of lots of different reading software, both for freely available and DRM-protected content.
Erm well yes no perhaps and maybe. Book.app looks promising. the HarperCollins search Inside are a complete red herring - they aren't eBooks. i think they are low-fi jpegs.
If you want to see what the iPhone is capable of check out the screenshots on the Book.app pages:
(taken from
here).
As good as my 600x480 resolution PDA don't know how it compares with a smartphone.
I wouldn't mind betting that the mobipocket guys will be on the case pretty soon (when they get back from holiday, get their servers running again etc). Personally for the moment I'll be sticking with the Windows Mobile PDA I already have, and I wouldn't buy an iPhone especially for viewing eBooks, but I will be watching to see what Apple come up with next.