When I'm reading an e-book, all I want in front of me is a large screen. However, the Kindle sacrifices screen size to make up for a built-in keyboard. 99% of the time that you are using the device you won't have any need for a keyboard, and the Iliad's 8 inch screen would serve you better at those times than the Kindle's 6 inch screen.
For me, the ideal form factor for an e-book reader would look like one of two things:
1) A larger iPod touch with something close to an 8 inch screen.
or
2) An EeePC with a swivel screen so you could use it in e-book mode, similar to the OLPC XO.
Right now I'm using an OLPC XO as an e-book reader, and although it doesn't have as nice a form factor as the Iliad or the Sony Reader, I do consider it significantly nicer than the Kindle. Of course, the low price doesn't hurt either.