One of the tricky things about sustained iPhone reading is how you are perceived as a reader. What I mean is, when you are sitting in a chair with a book, people have a pretty clear idea of what you are doing and act accordingly. They know that someone reading needs a bit of peace, some uninterrupted time. You get a bit of a pass to be disengaged. Even better, reading has enough positive connotations that your disengagement is looked on a little more favourably than if you were, say, emailing, checking stocks, or playing tiny-screen video games.
Switching to device-based reading means giving up the social force-field that a book can sometimes provide. You are seen as being active rather than at rest. People are more likely to interrupt, ask a question, or assume that you are paying attention. iPhone reading is "read" differently by observers than reading-while-holding-a-book. Reading a book over lunch makes you look studious, serious, or at worst, lacking in friends to eat with but at least well-read. Reading an iPhone over lunch just makes you appear to be a bit too attached to your consumer electronics. Reading and eating = OK. Reading and playing Super Monkey Ball = sad. Now perhaps you are a rugged individualist who doesn't care about how you are perceived, in which case you probably already flip open your laptop in restaurants and play World of Warcraft between courses. My awareness of social norms is just sensitive enough that pitying/repulsed/contemptuous looks from wait staff can act as a deterrent. So I've been toughing it out.
Similarly, reading in bed with a paper book is a well-understood end-of-the-day ritual that any domestic bed-sharing partner can understand. Reading an iPhone in bed risks triggering a completely justifiable "don't you dare bring work in here" reaction last seen during the BlackBerry Bedroom Banishment of '01. Some fast explaining along the theme of "just an experiment" combined with the backlighting benefits mentioned in previous posts can get past those concerns. But spousal doubts remain and the temptation to multitask has to be firmly tamped town.
Lastly, having a paper book in hand marks you as a member of the Reading Tribe, that scattered clan found in school stairways and libraries, subways and Starbucks, cottage docks and dachas around the world. The quiet-seekers. The deep thinkers. The escapers. Seeing books out in the open allows a member of the tribe to know that this is a Safe Place for Reading. When busting out a paper book in public, I am tacitly (and readers are nothing if not tacit) adding my support for reading as an acceptable public act. Even the Sony Reader, with its book like shape and flappy covers, shows that I am reading, not watching YouTube or instant messaging. Reading on an iPhone gives no such signal. To the extent that it shows anything at all, it shows that I am of the Tribe of Apple, or capable of affording a relatively expensive wireless plan, or that there is free WiFi. All might be true, but none are messages in which I have much emotional investment.
None of these things make reading from an iPhone impossible or even unenjoyable and as such probably won't prevent people from switching to screen-based reading. Wait staff will figure it out. Domestic partners will persevere. The Reading Tribe will be watchful for ever-more-subtle signs. And maybe seeing books and readers in the wild has no real value to anyone other than the few people who obsess over these kinds of things--book bloggers, LibraryThing subscribers, and their kin. It just feels like the switch from "reading a book" to "using a device" may over time blur the the value attached to the act of reading, with long-term effects unknown.