I've got a Sony Pocket reader. Pro: It was $99 when I bought it last year. The first full fiction book I read on it was _The Windup Girl_, and I had no problem reading either that or _Cryoburn_, or some of the short fiction up for a Hugo, as far as sheer enjoyment / reading experience for content.
Format is another matter. It doesn't handle pdfs well. The text for _Cryoburn_ had some oddities of spacing. The text of _Julian Comstock_ had spacing issues that made it tricky to know who was talking, although I wonder if turning it from .pdf to .doc would have helped a bit.
I've read some RPG products on it as well, with similar experiences. One long piece worked better when I turned it into text, although with formatting oddity caused by the usual RPG layout -- double column with boxed text at top or bottom means that the boxed text shows up in the middle of a sequence on the reader.
It works pretty well at a filksing, better than my laptop, because I can stand and hold it one handed and look up at the audience occasionally. I can read it when using an exercise bike, although it does slow down both reading and pedaling speed.
The Sony does not have a touch screen, which I don't mind. It does not connect to the Internet, which I actively approve of.
It doesn't have a lot of space -- it'll hold more like 30 books than 300, and it does not have a card slot or equivalent. I am not sure how annoying that is, given what I've heard from a friend who had the original Kindle. It spent a lot of time indexing and reindexing the card she had in it, apparently wanting to check constantly to make sure its contents had not changed.
Would an upgrade be sweet? No doubt, but I don't currently need one.
Is it replacing books for me? Not yet. It is supplementing them.
To replace books, what I'm currently doing is looking for electronic copy for things that
a) I am not likely to read, but don't want to admit that
b) I am not likely to read in the next decade, which may effectively be a)
c) I am not likely to reread -- but I want the option
d) I want as reference material, but am not likely to consult often
Getting a scanner that is more convenient for me to use might be an interesting option, but not one I'm yet looking into. My current theoretical project is similar, though -- I have a machine that can copy our video tape collection to hard drive.