As soon as I saw that Amazon had released their new Kindle Reader for the iPhone I immediately downloaded it and tried it out myself. My initial reaction: unimpressed.
The wireless downloads are nice, and the way it synchronizes your current page with the page you were reading on the Kindle device is handy, but the entire thing seems to be set up to make your phone an extension of your Kindle and not a replacement for it.
Take shopping for a new book, for example. When you try that from the iPhone reader, the software simply opens up the web browser on the Kindle store at amazon.com. It's practically impossible to actually order something from there, because the site is not very friendly to the small screen. The real Kindle has a real store that you can use right from the device. Obviously Amazon would rather you do your purchases from there.
Another glaring omission is search. Searching is one thing you can do with an e-book that you can't do with a paper book. The Kindle 2 has a physical keyboard for this purpose. They could have supported search on the iPhone with the pop-up keyboard, but didn't. Why not?
Kindle for iPhone is nice for people who already have a Kindle or Kindle 2 who might find themselves away from their device with a little time to kill. However, Amazon seems to have taken steps to make sure the iKindle does not cannibalize sales of their $359 money maker. If, as Amazon claims, the big-screen Kindle e-ink reading experience is so much better than reading books on a phone, then why bother crippling the phone reader?