That's a very good question, and one I've been trying to answer myself ever since I got my Nexus One. I've been reading ebooks on my Palm for years, and most of mine are also in text format.
Unfortunately, there's not a real good solution yet for reading plain text ebooks on Android (at least that I've found). Text Edit frequently comes up in discussions of text editors, but it's pretty simplistic. It's main advantage is that it includes a sdcard browser, so text files can be anywhere on the card. Unfortunately it chokes on large files. Also, if you want to begin editing in your file, you can't just tap where you are. Let's say you've been swiping the screen to move down in your document. If you find a spot you want to edit, then if you tap and bring up the keyboard, the cursor immediately moves to the top of the file, and you have to scroll down again to get to your insertion point. (You could have used the scroll ball from the beginning to move through the file, but when reading I prefer swiping the screen.) This is a killer for me, as it makes it almost impossible to edit large docs, or even easily insert a bookmark.
Papyrus is another text editor I've been trying out. It does make editing larger docs easier. You can bring up the keyboard anywhere in the document, and have the cursor close to where you tapped. Then you just need to use the scroll ball to then zero in on where you want to edit. Combined with Inserty (an alternate keyboard app that let's you insert pre-defined text, e.g. '[bookmark]'), this is *close* to what I used to do on my Palm. (It was easier on the Palm cause you could use a stylus, but this is close.) It also seems to handle large documents better. However, it has none of the bells and whistles you'd expect from an app dedicated to reading ebooks. Oh yeah, Papyrus does require you to put the docs in the /sdcard/Notes directory, and it doesn't read subfolders. Kind of a pain, as you can't organize your books on the sdcard using folders.
I am trying Aldiko as well, and as an ebook reading app, it's pretty good. I'm not overly fond of it's "bookshelf" UI; I wish it would just give me a simple list of the books on my sdcard. Because of the bookshelf metaphor, you have to actually *import* epubs into Aldiko. It doesn't seem to do anything to the book itself; if you compare the epubs before and after import, they're the same. You just have to import it so it shows up in your bookshelf. Unnecessary, if you ask me.
Still, it does a pretty good job as a reader. Paging through a document works well (you can even use the volume toggle switch on the N1 to page up or down). You can bookmark pages, but unfortunately you can't seem to tie a bookmark to a specific piece of text (like if you find a typo you want to go back and correct). I also find it frustrating that it doesn't give you an actual indication of where you are in the book, just a rather vague progress bar along the bottom. And it doesn't even show your progress in the entire book, but rather shows your position within the epub chapter!
As for converting my text files to epubs, since epub gives every appearance of becoming *the* standard for ebooks, I figure I probably need to eventually convert my collection to it anyway. However, I'm doing the conversion piecemeal, when I want to read a specific book.
I'm currently trying out two different programs to create epub ebooks. Aldiko recommends Calibre (
calibre - E-book management). If you happen to have a well-marked up HTML document, Calibre does pretty well in converting it. It doesn't do quite so well converting plain text; you end up with a pretty minimal document that doesn't necessarily display well on the Android screen. I'm also frustrated that Calibre also wants to be my desktop ebook manager, insisting on bringing every book I want to convert into its own management system, kinda like an iTunes for ebooks. I can manage my ebook collection quite well on my own, thank you very much.
I'm also looking at an open source project called Sigil (
sigil - Project Hosting on Google Code). Sigil is still in the early development stages (it's not even at ver. 1.x yet), but it looks quite promising. It gives you a WYSIWYG editor for your epub, but also lets you directly edit the XHTML code as well (as an HTML coder and programmer, I appreciate that level of control). I've found that I have a lot more control over converting my text files to epub using Sigil than I do with Calibre. For example, if I happened to use the text '[italics][/italics]' or '_...._' in my text ebook, to indicate emphasis, I can do a simple search and replace directly on the code in Sigil to convert that to real italics tags. It also is very easy to insert chapter breaks, and mark text as a chapter heading, which Sigil then automatically inserts into the epub table of contents. Sigil doesn't yet give me as much control over the stylesheets though, but it is still early in its development. Hopefully that will come.
So, basically I'm using Aldiko on the Android to read epubs, and Papyrus to read long text docs (if I absolutely have to). I'm converting my docs to epub as I go. I'm using Calibre to convert my HTML files, and using Sigil for everything else. I'm not investing a lot of time yet in doing mass conversions of my text files, however. At lot of them simply don't justify the effort, or don't benefit from a full markup. So, I'm also still waiting for a really good (long) text editor for Android.
Hope this helps.
Larry
) claims to read .pdb format. 
