I use Bookshelf as well. If you have lots of books, Bookshelf is the best due to it's "Shelfserver" that da_jane was referring to. It will let you point to folders that have books and then from the phone download those folders in part or in their entirety. It converts the books on the fly for reading on Bookshelf.
iPhone BookShelf - Welcome has info on currently supported formats.
As a reader it's good but has some work to do still. All in all it works great, but isn't perfect. It "chunks" books so that you can, literally, read any size book (since it loads chunks) and that also means books load FAST. However it also means you don't have a seamless scrolling through the book, but Zak is working on that as well as other enhancements.
It also has the ability to connect up to other shelf servers on the web, such as the one the Bean library implemented. That means you can log into your Webscriptions.net account and download the entire free Bean library or purchase and read non-free books. Pretty cool.