Yes – the 2.0 software for the iPod Touch allows (finally !) 3rd party software to be installed, making the Touch a more versatile piece of equipment than just a browser and audio/video player. Suddenly it becomes more of a PDA.
I downloaded the Stanza ebook reader to the Touch. It allows downloads of free ebooks from project Gutenberg. I downloaded a few, and got to read one for now. Having watched the “Jekyll” miniseries on DVD I got curious and wanted to (re)read the story giving the inspiration for the series – the short story “Strange Case of Dr. Jekyll and Mr. Hyde” by Robert Louis Stevenson.
Also I downloaded a few ebooks that come as applications for the Touch. Mike Stackpole has a few there, mostly short stories, but his novel “One a Hero” is there as well.
I have read a bit of those as well.
The small screen of the Touch is not really ideal for the purpose, but if you go travelling and want to travel “light” it is an option for having a set of books with you. It is easy to adjust the font size for relatively comfortable reading. Just don’t expect to read a novel in one go on the iPod Touch.