I have read on my iPhone. But I do prefer my Sony Reader.
I own both an iPad and an iPhone 4. In general I prefer reading books on the iPad in iBooks. In a pinch I will read using the Kindle app for the iPad, as I had to do when Zero Sum Game didn't come out in iBooks, despite the preorders. In general it is a more pleasant reading experience than I would have anticipated. I didn't think I would like the eye strain of reading on the screen, but I find it to be not bad, and I can read for extended periods with no problem.
I also occasionally read on my iPhone (on the bus, tram, etc). On the old iphone this was a poor experience, with the resolution limiting the enjoyment significantly. However, the high resolution iPhone 4 screen has made it a breeze. Yes, you have to turn pages pretty frequently, due to the small size, but the text in both iBooks and Kindle is crystal clear. Definitely acceptable for short or medium length trips.
Having said all that, I still prefer my books in dead-tree format. But since I am living in Europe for a few years, I'll likely be buying many more ebooks, to avoid having to haul them all back to the USA when I am done! :-p