I have two reading applications on my iPod Touch. I think they are available for free download at the Apple Apps Store. They are Stanza and TextOnPhone, also known as Portable Reading. So far, all of the books I have downloaded were free.
The one app that I prefer is Stanza. Check out their homepage here: http://www.lexcycle.com/. I like the way that the text fits perfectly on the iPod Touch screen with no need to scroll up and down, and the ease of moving from page to page by just touching the edge of the screen.
TextOnPhone is the one I started with. I access it through FaceBook and there is a very good video that shows how to use it. I find that it does not fit perfectly on my iPod screen and I cannot read one page at a time without scrolling. Perhaps others don’t have that problem. However, the access to it through FaceBook is really nice. I don’t see that Stanza has that.
What seems wonderful about both of these applications is that pages are automatically cached, so that when there is no Internet connection, one can still read. Here is the video for TextOnPhone: http://www.youtube.com/watch?v=QWd8J8C3Gaw.
You can listen to your music too, whilst reading. Nice.