I have both a Kindle 1 and a Kindle 2 and I have to say the second version is definitely superior to the first. The most annoying part of the first one was that it would accidentally page flip when I didn't want it to. Amazon changed the buttons so that they require inward pressure rather than outward, so accidental page flipping is pretty much in the past.
The only drawback that version 2 has is that version 1 supported a removable battery and SD cards. Version 2's battery is not user-replaceable and no SD card is possible, though they upped the available flash for storage. Better book management and archiving help around the SD card limitation. More on that later.
As Pam said, you can put your own content onto the Kindle. If you have a computer (and you probably do if you're reading this) you can plug the Kindle into a USB port and copy .azw files onto the Kindle (or off if you want to make a personal backup). There's a free email address: <username>@free.kindle.com that is equivalent to the version that costs 10 cents per document. Instead of downloading directly to your Kindle, though, it sends you back an email when it's done with a link for you to download the resulting .azw file.
Copy that file onto the Kindle and read away. The advantage of that approach is that you can keep a backup of your personal books on your own computer whereas Amazon only backs up your paid books.
PDF support is experimental and can occasionally give you a bad copy. I had one book that had sections in the wrong order. I'd read one paragraph only to have it interrupted by the wrong text, only to pick up later several pages afterwards. I'd then have to flip back to find where that paragraph left off.
I haven't tried HTML support yet, but plain text seems to work fine.
They've improved on the content handling in that you can easily delete your books when you're done and then bring them back just by going to the Archive selection on the Kindle. Before, I always kept all of my books on the Kindle, but sorting through multiple pages can be a pain. Now I can keep only the books I'm currently reading. As long as I have access to the Sprint network, I can retrieve an archived book at any time.
As for reading, I prefer reading off the Kindle to a real book now. It's just more convenient and less bulky. The first Kindle was a bit awkward. As a bit of advice, keep the 3G wireless switch turned off so that the Kindle can last a couple of weeks on a single charge. Leaving it on all the time gives you only about four days or so of charge.
I haven't tested it yet, but I'm told that the wireless will wake up on occasion even if the switch is off to sync up the latest book annotations and page location to Amazon servers so that if you read your book elsewhere, such as on the Kindle app for iPhone/iPod touch, you'll be able to pick up where you left off. This is the Whispersync capability. I've had a few problems with books I'd already read once where the sync seems to take you to the end of the book rather than where you left off.
The Kindle app is free on iPhone but doesn't support periodicals, newspapers, or your own documents. Nor does it support text-to-speech. Perhaps version 2 will especially with Amazon buying out the people who wrote the other major eBook application, Stanza. You don't have to own a Kindle to use the iPhone app.
Kindle book prices seem pretty good, mostly cheaper than if I were to buy a real book. A best seller hard back would go for $25 at the bookstore while I could get a Kindle version for $9 or $10. Most books are even cheaper.
P.S. I should make a disclaimer to say that I work for the company that essentially did all the Whispernet work and supplied the 3G chipset and I even work for the division that did it, but I had no personal involvement in the project.
