The iPhone is a great ebook reader in theory, but I haven't found a good way to read PDF content so far.
There are a ton of file manager apps like Air Sharing ($4.99; I got it when it was free) and Files Lite (free) that can show PDF files without conversion. You can also open PDFs via mail, stored as data in bookmarks etc.
Browsing the PDFs is fast, and the rendering is beautiful. However:
The PDF viewing in these apps is not optimized for reading. This is a general issue I have with many iPhone apps. There are many constraints, like the small screen and slow input, that should be paid more respect.
These apps all seem to use the same PDF view, which wastes a lot of space on a gray background and dropshadows. And when you've zoomed in to get at the content, this wasted space means you must be careful to only scroll vertically or the good parts go offscreen (tip: scroll with your finger against the edge of the screen).
My ideal iPhone PDF reader would have no such wasted space. Preferably it should hide a big chunk of the PDF margins, too, assuming they have no content.
Also, since you often need to zoom in beyond the width of a line of text to see it clearly, it should have simple navigation where you can tap once to go one screenful (minus some overlap for context) towards the end of the line, then once you've reached the end of the line, tap again to go to the start of the line and down one screenful, etc.
There should also be a rotation lock, so you can read on your side in bed.
I haven't seen such an app, but I hope someone would make one – I'm sure a lot of people would be happy to pay for it.