Neither my Kindle 1 nor Kindle 2 got much use. Kindle three does. The design is better, and the screen has gotten just good enough that I feel OK about it. (On One and Two, the contrast was too low. It's not a
lot higher on Three, but just enough.)
Due to the non-backlit screen, the Kindle is a little bit easier on the eyes like they say. But it's not a big deal for me, these days I don't read for hours in a row.
It's a lot cheaper than the iPad of course, and it's a lot lighter. That's important unless the iPad is supported by a stand or a
book holder.
If and when a much lighter iPad arrives, lord know how much I'll use the Kindle if at all, for these reasons...
One big advantage of the iPad is that compared to the Kindle, it is
way more flexible about what kinds of text you can read on it. Even web browsing is great (though I'm looking forward to the hopefully-soon arrival of variable text size in Safari) (you can zoom in though). You
can browse the web on the Kindle, but the interface is
very slow and clumsy and the small grey-scale screen is not great for it. And if you want to read blogs on it, you must pay Amazon, something like two dollars per month per blog, and only for the blogs which are signed up for it (and only Americans can currently sign up).
The Kindle can only read the MOBI format [update below]. Which means that everything you want to read on it must come in that format, or be translated to it. It's cumbersome. The iPad can not only read about anything (in various apps), but it can also import via many channels, like the web, or Dropbox (free service), or many more.
If you like a very small/light or economical reader device, and you will read mainly books/periodicals bought on the Kindle Store, the Kindle 3 is a winner. Otherwise I lean towards the iPad. (Or possibly any of the upcoming competitors, if any of them turns out to be user-friendly.)
Update: Ganesha Games said:
Kindle also reads, quite obviously, its own format (I think it's called kdr) and PDF.
Good point, thank you.
I hope in next software update that they will allow stepless zoom on PDF, instead of the rather crude steps there are now (Fit on screen, 150%, 200%, 400%.)