I've got a Sony PRS650 - absolutely love it. The Kobo touch is probably pretty similar; people who have tried a lot of different readers generally seem say Sony has the highest build quality and best reading software, but they cost more money than a Kobo or a Kindle. The PRS650 is a touch screen, and doesn't have any space taken up by anything like a keyboard. On the downside you need to buy books on your computer and load them onto the device (the Kobo can purchase books directly with a wireless connection, and the 3G Kindle can buy books anywhere with a 3G connection), but personally I prefer to organize my books on my computer anyhow so that's not an issue for me.
I'd definitely recommend an e-ink screen if you'll be reading mainly novels etc., and get a case with a built-in light for reading in the dark.
If you're going to stay legal, you need to consider that Kindles more-or-less lock you into Amazon (there are some other sellers with .mobi format that can be read by a Kindle), while pretty much every other reader uses EPub format allowing you to shop around for the best price a bit more. Also note that many books have geographic restrictions due to publishing contracts, so you can only legally buy them in certain countries. Last I heard Kobobooks had the biggest selection in Canada, though Amazon are close (for the US I believe Amazon have the biggest selection).
If you're not worried about legality and don't mind stripping DRM off books and converting formats, none of that matters and go with the reader you like the best.
There's a lot of good information at
http://www.mobileread.com/forums/ about the different devices, formats, etc.