Engadget has it from inside sources at Apple that a next-generation iPod is in the works with a larger screen and a full-fledged text reader:

…two bits from separate, trustworthy insiders that Apple’s not satisfied merely vending Audible‘s books-on-digital-audio solution. With the iRex iLiad and Sony PRS-500 Portable Reader both right around the corner, is it possible the next iPod might catch the eBook bug? We’d say the possibility is very real, since according to a source at a major publishing house, they were just ordered to archive all their manuscripts — every single one — and send them over to Apple’s Cupertino HQ.

So Audible, huh? Interesting. They got a toehold in the market with audiobooks, and may now be making the transition to ebooks.

A separate trusted source let us know that the next iPod will have a substantial amount of screen real estate (as we’d all suspected), as well as a book reading mode that pumps up the contrast and drops into monochrome for easy reading. It’s no e-ink, sure, but a widescreen iPod would be well suited for the purpose, and according to our source, the books you’d buy (presumably through iTunes) won’t have an expiration…

I’d hope that such a device would have wifi, a web browser and an RSS reader that could be taken offline. I think that books will only be a part of the equation.
Teleread has the ebook standards angle.