iBooks on the iPad is the best ebook reading experience I've ever had (though to be fair I only have compared it to the Kindle 2nd Gen, Kindle on iPad, Kindle on iPhone, and various ebook readers on webOS and PalmOS).
Although initially I was a little concerned that reading on an LCD for extended periods of time would cause eye strain, reading for a couple of hours last night wasn't a problem at all. I will have to wait and see if even longer sessions cause problems, but my hunch is that won't be the case. You can adjust the brightness of the screen, the font size, and even the font type right from inside the app as you're reading to ensure that you're not squinting into some insanely bright screen.
You can search an entire book, look up words in the dictionary, jump to chapters, and so on. Bookmarking seems to only work on specific words, not on pages, but once you figure that out you're set to go. Unfortunately there doesn't seem to be a way to enter notes, only to highlight text in one of five colors. In other words, academics can add the inability to add margin notes to the other reasons to shy away from ebooks for now (the others including the fact that you can't trade or sell ebooks and, of course, DRM).
The iBooks Store is in-app and ties into your iTunes account, so you won't need to remember a different password to use it. Book selection seems to be slightly worse than what you can find in Amazon's Kindle store - but this early it's not completely fair to judge on selection. As with iTunes, there are plenty of top-charts like the NYT bestseller list, categories, and the ability to download samples of books to see if it's something you'd really like to read.
If you were thinking of buying a Kindle, don't.
Video and gallery after the break!