I soon gave up any long- or even medium-format reading on the iPhone due to this issue, and now use it as a comms device (Twitter, SMS, occasional web pages - revolutionary idea: smartphone as a comms device ;-)
Reading on the iPad is a little more complicated than the iPhone. Each weekend I read The Guardian in print and online formats, allowing direct comparison of the same content in different formats. It's the weekend, and the relaxation factor of a printed newspaper is significant, but for me, the iPad still falls more within the sit-forward than the sit-back information space paradigm. The above ad in this Saturday's print Guardian (hence the fuzzy picture - click for larger image) reveals the key problem - how much information is available at various levels of browsing? For me, the top layers on mobile devices are too restricted (The Guardian Nokia app in the photo being an extreme example), which limits my interaction with the content by restricting the pathways I feel able or willing to take through the content. Similar reservations have been described for eBooks, so I know I'm not alone.
I have the same problem with mobile versions of websites on the iPad - for example, I don't want the mobile version of Google Reader (lower panel below), I prefer to use the real thing (upper panel) which gives me much richer top level information and expands the "cognitive space" of the service, opening up many information pathways:
I need someone to point me at the appropriate literature in this area (if there is any beyond this) - offers?