I heard that the Sony Reader has really bad support for Chinese. It can only display Chinese characters in embedded PDFs, but it does a very poor job of it. It can't display book titles and authors in Chinese either. It looks like Sony never tried to make the reader support multiple languages.
Someone did hack into the firmware to make the reader support Chinese. The description of how to do that (written in Chinese) is here:
http://www.handsee.com/bbs/html/2007...424051012.html