I have a Kindle Fire and a Kindle 3. The Kindle 3 I've filled with a huge amount of public-domain books, and those won't ever be taken away as I got a lot of them from Project Gutenberg. Quite honestly it's a great purchase if you're interested in reading classical literature. I'd often use the audioread feature on the bus, and the screen is great. I was skeptical of the lack of physicality when I got it as well, but it turned out I didn't care much after being able to have 40 books I can flip through easily. Note, that it won't be a conversation piece though... part of the reason I keep a few actual books in my backpack as well.
The Kindle Fire does have a nice reading app but I rarely use it for reading since it's much worse to read on than the e-ink displays. It's a Netflix/internet device only.