Initially, the available range of in print books will presumably be smaller than in a bookstore, since Amazon has to strike a deal with each publisher to make its books available. On the other hand, the system could potentially provide a much wider range of books than any bookstore other than online ones such as Amazon itself, and Amazon is in a good position to rapidly expand the range of what is available.
Many of the books I would want on such a device are out of print and available to me for free in machine readable form--either my own manuscripts, which I like to go over to note things that need changing (or because I like reading my own work) or books from Gutenberg, the Baen free library, and similar sources. As I understand it, Amazon will be willing to put such material, delivered to them in the form of Word files, on my Kindle, at a low price--how low isn't clear. If low enough, that solves the problem.
Alternatively, I might be able to put them on myself. The Kindle has a USB connection and will take a removable SD card. How easy it is to move files to it will depend on how easy it is to get them in the right format, but I assume it won't be too hard.
This, however, raises an obvious problem, the one publishers have long been worried about--piracy. What prevents me from buying a best seller, downloading it to my Kindle, transferring it to my SD card, then using that to transfer it to my friend's Kindle? At that level, what I am doing isn't much worse, from the publisher's standpoint, then finishing the book and passing it on to my friend. But the next step is for someone to set up either a pirate archive online or a decentralized file sharing system and make lots of in copyright books available via the internet.
My guess is that Amazon and the publishers are simply gambling that this won't be enough of a problem to outweigh the advantages of the device, and they may be right. There are possible technological fixes, however, at least worth thinking about. Your Kindle could, for instance, encrypt everything it gets from Amazon, or have Amazon encrypt it before sending. If the decryption key is built into the hardware in a way that makes it hard to extract--different for each Kindle--what you can transfer to a friend will not be of much use to him.
There are ways of getting around such a system. And there are serious risks of consumer complaints coming out of misfunctions--or even out of people feeling that they ought to be able to pass the book on to a friend. So my guess is they aren't doing it.
Which leaves me with one suggestion. To make the product even more valuable, Amazon should arrange with Gutenberg--better yet, with anyone who wants to make free books available in ways that don't violate copyright law--to include their books on the list searchable from the Kindle. Amazon can make money doing it with a modest charge for the service of transferring the material.
[Apparently Amazon was ahead of me. According to one webbed source, discovered after I wrote and posted the paragraph above, you can buy books from Gutenberg for something under a dollar--payment to Amazon for converting the format and transferring the book. And it sounds as though the Kindle reads a number of formats, including HTML, which should simplify transferring one's own material. Sounds great.]