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Public domain books are the easy part: if it's in the public domain, odds are you can find it without DRM, which means you can download it in, or convert it to, whichever format works best for you. The Kindle can read .mobi format, so long as it doesn't have DRM (digital rights management). It's a little cumbersome, but you can even browse Project Gutenberg via the Kindle's web browser, and download directly to that, if you don't want to use your computer. It's really very easy to load DRM-free books from the computer to the Kindle--takes maybe two minutes, tops, to load 40 or 50 books.
With your desire for a color screen and handwriting recognition, you might want to wait a couple of months until some of the new tablets come out, because those might meet your needs a little better.
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