The Kindle can read AZW (Amazon's own format), PDF (very common), MOBI/PRC (very common), and TXT (plain text) files. Thus, you can read eBooks from a number of sources, not just Amazon. Note, however, that it does not support EPUB, which is the open source standard.

The Sony Reader supports PDF (very common), EPUB (very common), and BBeB (Sony's own format) files, but not the MOBI format. In addition, it can display JPEGs (most common image files) and play MP3 and unencrypted AAC (Apple's default iPod/iTunes format) files.

Note that both AZW and BBeB formats are proprietary, so you cannot read a book from the Kindle store on the Sony Reader, or vice versa. However, Amazon and Sony sell a large collection of books in open formats as well, so purchasing a Sony Reader does not prevent you from purchasing some eBooks from Amazon, or vice versa.

Hope this helps,