I think Apple could mop the floor with Kindle, both design-wise and interface-wise, but the market isn't really proven yet. (They might even be able to do it on cost if they don't use cell towers to download the books, but instead go for the familiar docking method.) I don't know a lot of people buying eBooks, which is unlike the proven market for MP3 players (when iPod came out), and cell phones (when iPhone came out).
Think of the school and college text book market. H_U_G_E. I was paying USD 600 a QUARTER in Business School for text books. A ebook reader even if it focused only on text books and/or scientific/business journals would be a huge hit.
eV