I recently did a little experiment while on my trip to KidLitCon and the East Coast. I read Ashes by Ilsa J. Bick as my first eBook, downloaded to the Kindle app on my iPad 2. I also read Harlan Coben's Shelter on my iPad, using the native iBooks app.I found pros and cons to each. (Please note that here I'm talking about the Kindle app on the iPad, and not the Kindle itself.)
I found the Kindle app more readable right out of the box (fonts, fontsize, relative contrast of text and background), though these things are somewhat configurable in the iBooks app. The iBooks app does let you change the font, which is nice, but the old-school part of me thinks that I shouldn't be monkeying with the font of books I'm reading anyway.
I initially liked that the iBooks app shows page numbers, but was less pleased when I realized that the page numbering does not correspond with the page numbers of the hardcover. Of course this makes sense, given that you can change font size, etc. It's more a nod to old-school ways of knowing where you are in a book. The Kindle app just shows you what percentage of the way through the book you are. I respect what the iBooks app is trying to do in giving the feel of a printed book (the right-hand side of the screen also shows ruffled page edges). But the net result is that the iBooks screen feels more cluttered, while the screen when using the Kindle app is cleaner. The Kindle automatically hides all of the options (book location, home button, etc.), while the iBooks requires an extra step to hide them, every time you reopen.
So, on a pure reading experience basis, the Kindle app wins for me. But of course there are other factors.
Both products have integrated Google and Wikipedia search, and the ability to bookmark pages and add notes to the text. You can also link to Twitter and Facebook with the Kindle app, to share excerpts of books (kind of cool, though I'm not sure I would do it). The iBooks app lets you add notes (like sticky notes that you can write on), and then email them to yourself (it doesn't email text from the book, just your note and what page it was attached to). The Kindle app by default automatically backs up all your annotations at Amazon.com, and includes them in "popular highlights". This bothers me a bit, even though I frequently share things that I like in reviews. Perhaps it's because when I flag something in a book that I'm reading for review, I might flag because I like it OR because I don't like it. But I can turn that off.
Both products include dictionaries. The Kindle dictionary was a bit less intuitive to use, you have to press down on the word for a surprisingly long time to make the definition come up. The Kindle app puts a short definition at the bottom of the page, below the text, with an option to click for more detail. The iBooks app has a longer popup definition to start with. So again, the Kindle version is a bit less cluttered.
But the bottom line is that these apps have largely the same functionality, with each having a slight edge in one area or another. Although I preferred the less cluttered look of the Kindle, I could easily get used to either reader. I think that the decision of which to use is going to boil down more to who I trust to store my book content than which of these two apps provides a better reading experience. I think the jury's still out on that ...
What I think I'm going to do for now, though, is continue to purchase a few titles that I'm particularly interested in reading, and read them on my iPad. I prefer this to starting to accept review titles for my iPad, because I still have some kinks to work out in terms of using the notes features and writing reviews. I still find paper books easier on my eyes, and a more enjoyable tactile experience. I like being able to see, from the thickness of the book, how much I have left. I like seeing my "porcupine" of post-it flags sticking out a book. But I will say that being able to load a few books up onto the iPad for trips is very nice, as is being able to read in an otherwise dark room (on the plane, in bed, etc.).