I think that now is an excellent time to start thinking about the Kindle 2.0, which I think about as the Timber (or Tinder, whichever floats your boat). I have made a mock up of what I think would overcome the Kindle's weaknesses as a 1.0 product (click for larger version).
In addition to the features mentioned above, it is more rectangular and I think looks better (even though it is obviously a mock up). I like it, and between it and an iPhone for the same price, I would still choose the iPhone, but I would choose it before buying $400 worth of books.
EDIT: Oh, and you can't stick an XKCD actual size sticker on there because it isn't actual size, I would imagine it to be a little bit bigger.
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Kindle is out of stock and ranked #1 on Amazon Electronics list so it is off to a good start. Amazon has a Kindle store so it has a lot of visibility.
I did some searching around about the book format. It is mobipocket format which Amazon acquired in 2005. It is HTML based to allow reflow. The Kindle reader might be based on mobipocket reader. Checkout mobipocket.com for books and reader for mobile devices and Windows.
I think the keyboard is designed to type with two thumbs. One use while reading is to make annotates. Another is to look up a word in a dictionary.
The keyboard is also there for holding the Kindle so your hands are out of the way of the screen. That's Amazon's thinking.
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