You can consider to use the Kindle for iPhone:

It has, of course, lots of limitations when compared with reading books on the Kindle. If you like reading, the Kindle 2 should be a good choice.

Read the actual user review here to know more:

I would check out the kindles homepage (i linked to it below), I personally love mine, it really is just like reading a book.

and you can download new books virtually anywhere, it is one of the best things i have ever treated myself too

good luck

Yes, you can download an application to the iPhone and read Kindle books, here is an article talking about this:

However, when using the iPhone to read Kindle books, there are quite a lot of people complaining about the small screen size, discomfort for long reading, no wireless access and no access of Kindle store for instant download of books and newspapers, etc., when compared to the Kindle. If you only use the device for reading occasionally then it should be fine. But if you’ll use it for reading often then it is the best bet to buy the Kindle. You’ll definitely feel a big difference on the reading experience. There is a good review here talking about the difference too:

Hope it helps.