I guess it will Steve
My understanding is that they use XML as a binder, something like the Opendocusment format and IDPDF (whatever) guys are doing with their "glorified zip" files, but way better.
They use XML not just to bind the content together but also to build a book like document with format and structure and timeline -- for multimedia content synchronization.
From what I've seen so far looks like they'll support HTML and RTF at least and of course plain text.
Yes, looks like you'll need the Sophie Reader to read the documents. Remember it's FOSS, so I don't see it as a problem.
Would be nice to see it working on an eInk device some day.