[boswd]

I'll bite and throw my hat into the ring for the nook.

the nook does have all the features you are looking for minus the turning your handwriting into a display text.

It can highlight, take notes via it's virtual keyboard, look up works via a dictionary and in a pinch use it's webbrowser for wikipedia (though I find mobile sites work best) and use it more to connect to more Wi Fi hotspots.

But it does seem like a basic way to take notes as compared to some other e-readers that have more advanced note taking such the Sony PRS 900 or the Entourage, but these are also priced really high and seem to be out of your price range.
So the nook does do what you are looking for but there are more advanced note takers out there. I guess you would have to weigh in on how high of a priority note taking is in consideration to how much you want to pay.

But as far as general reading I think it's pretty difficult to beat the overall reading experience on the Nook.
First off I would like to point out that you are NOT locked into buying only through Barnes and Noble. The Nook does support e-pub so anyone who sells books with the epub format, which is basically everywhere but Amazon, including your local library you are all set and do not have to take extra steps to convert.

but as I said the reading experience on the Nook is really just a joy. The first thing I like about it is it's design. It's very sleek, and clean. just two back and forth arrows on each side. It's not busy with all sorts of buttons and knobs etc that are placed all over the device. Just a nice clean sleak look which for me allows you to just immearse yourself into your novel with much more ease without the distractions of your units navigation buttons.

Also besides manual page turning using the arrow, you can finger swipe to page turn as well. When the LCD screen goes to sleep, you can just do light flick on the screen with your finger to turn the page. IMHO allows a much more natural feel to it when reading. I almost use it exclusively. Again it just adds to the enjoyment of reading. and it just seems like you develop a more fluid flow with the finger swipe

Next is it's feature where it displays color book cover art and in your B&N Library it has the cover flow. Again seeing wha tyour book cover looks like in color lends to a more enjoyable more natural way to approach reading. Not a deal breaker but a very nice touch since lets face it we like to see the covers of our books especially in color.

Also its response. Though the Nook did stumble out of the gate when it was first realeased back in November due to a series of updates its performance is excellent. the speed it opens up and downloads books, page turning speed is fantastic now. It's speed is comparable to all the other top ereaders now.

and lastley the contrast. It is one of if not the best dispaly screens for contrast. the text is very sharp and black. the background is one of the closest I've seen out on the marke to white. That is ne of the drawbacks of the Sony's touches, they are dimmer with background a deeper shade of gray.

and throw in the fact that you can download your books wirelessy through both wi fi and 3G and with the Price reduction down to $199 makes the full feature Nook a steal IMHO and the $149 Wi Fi only almost a no brainer if looking to keep a low budget but get top features in that price range. It's the same machine, all the same features, fun features as the original must minus the 3G.

Add on to InStore experience, makes the Nook a very attractive option.

Good luck with whatever you choose