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It looks like an Apple problem at this point (not being able to read embedded fonts in epub or something like that). Can you check with them (or the Stanza/ibooks devs) whether Stanza/ibooks supports embedded fonts? Nothing you can do if they don't. Also, see if you can find any other epub readers for your itouch. I'm not an Apple user so I have no idea if this is an OS problem (no fonts other than system fonts allowed) or if it's at the level of the app (i.e. Stanza and iBooks are just deficient in that regard).
Essentially, since the Atlantis team has confirmed that the fonts are embedded properly, since the Sony reader can read it, it is no longer an issue with creating the epub but being able to read it.
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