I looked into the .txt carriage return ‘bug’ that causes the text not to re-flow nicely that Terence pointed out on the David Copperfield file . To be honest even when opened up with TextEdit on my mac the carriage returns don’t re-flow and cause the lines to break and display just as they do on the reader. I don’t really see it as a display bug with the reader.
I opened the example file up with with a text editor that can show the carriage returns, do regex replacement and replaced ‘(.)r(w)’ with ‘$1 $2’. Basically it strips any carriage returns that are breaking up sentences without destroying the rest of the formatting.
If someone would like to give this file that I processed a go to see how it looks on the reader then it’d be appreciated: http://contractcoder.biz/files/David%20Copperfield.txt

If the above is fine I can either batch process all the free ebook .txt files to fix the problem and put them on my site to download, or I can supply an easy to use perl script to use on any files you have this problem with or maybe I could make a page for people to upload the file reformat it and give them back a file download.

I think I’m going to be buying one of these tomorrow, it’s easily the cheapest reader with the most functionality available in the UK at the moment.