The Kindle is damn fine: the hardware is nearly perfect, of course it could always be smaller, lighter, and have a bigger screen (and I never use the keyboard, so that is dead space to me), and the software is pretty good, although there is room for improvement here (it crashes more often than I'd like, viewing two column PDFs is pretty poor, it takes ages for big files such as audio books to appear, etc.). So, I have no big complaints with the device, and it is extraordinarily convenient. Being able to buy books and read them in seconds is amazing, it's great for travelling with - I recently travelled round India with mine using the Lonely Planet PDFs (pro tip: avoid the LP Kindle editions like the plague) and a whole bunch of books I would not have been able to carry otherwise, and it's a nice reading experience in a way I can't quite put my finger on.
BUT, I'm already fighting the urge to buy paper copies of my ebooks. Having real books is so nice, it's something I grew up with, and having a book case full of good books to browse and just have around is really important to me. There is something aesthetic about all the colourful spines, as well as the ease of browsing and the serendipity factor of some old book jumping out at you for a re-read. I don't see the Kindle coming close at the end of the day, or anyway to get around this fundamental barrier. I am already using the Kindle to read books I don't think I'll want to read again or have around, and saving the good ones for the real thing.
And then there's the cost. On Amazon, Kindle books are only a whisker cheaper than their paper equivalents, which to me means someone is making a big profit over the paper, and I would bet anything you like it's not the author. So I feel like I'm paying a premium for an inferior product. If I lived in the UK, I would probably only use the Kindle for travelling.
However, it's a lot cheaper than buying the book in New Zealand (where books are extortionately expensive) and I don't need to wait for weeks for them to turn up by mail, so here and now, the ebooks have an edge. If you live in NZ, buy a Kindle, you'll save a fortune.