Amazon.com has cause to celebrate before it unveils Kindle 2.0 next Monday. Using Apple’s iPod as its model, Citigroup predicts that the Kindle, what it calls the, iPod of the book world,” will become a $1.2 billion dollar business by 2010.

Analyst Mark Mahaney estimates that Amazon sold over 500,000 of the e-book readers last year alone based upon filings about wireless service activations from Amazon partner Sprint. He came to the $1.2 billion figure by assuming that Kindle owners will purchase an e-book every month.

The Kindle seems to be a hit–enough of one that Amazon has struggled to keep up with demand. Whether it is on the road to becoming another iPod is another story. There may be many avid readers, but few people that I know buy a book every single month. It is much easier for people to consume music and video than it is to sit down and find the time to read. And many titles now cost over $10.

Sure, certain segments will buy books regularly–commuters, book club members–but the iPod model may not be the best fit for the Kindle. Would you buy your kids a $300 e-book reader when a single book can occupy them for under $10?

Call me a curmudgeon, but my take is that the Kindle will sell briskly, and it could help e-books become more mainstream–but it won’t become a runaway success like the iPod has been.

If Howard Stern is the “King of all Media” (at least he tells himself that), then Oprah Winfrey should rightfully be considered the Queen. Amazon must be tickled pink that the iconic talk show host has given its Kindle a ringing endorsement, which came as part of her show on Friday.

Winfrey says the device “was life-changing” and is “the wave of the future.” With her influential book club, which have turned many an author into overnight success stories, Oprah brings a large consumer base into Amazon’s waiting open arms.

At $359 the Kindle is still expensive for most — Oprah even admitted as much during the show, which also featured Amazon CEO Jeff Bezos. But with Oprah’s star power behind it, the device now has the opportunity to move out of cult favorite and into the mainstream

The appearance of the device on the show did not come without a promotion. By entering the code “OPRAHWINFREY” at checkout, a $50 discount on the device will be provided. For those on the fence, here’s your reason to jump in.

How big is this for Amazon? In my opinion, very. This essentially gives the device the kind of publicity it needs in order to survive. It also puts pressure on Sony, who now must try to match Amazon’s move. A deal with Martha Stewart, anyone?

Sony, which is among many other things the other big company besides Amazon that’s in the e-book game, has announced a new model: the Reader Digital Book PRS-700BC. Available in mid-November, it will sell for $399 and sports two significant features: a touchscreen that lets you turn the page by swiping and sidelighting that illuminates the screen. In theory, at least, both should be great big advances, since both previous Sony Readers and Amazon’s Kindle have had quirky user interfaces that involve buttons off to the side of the screen, and the e-ink technology used by both devices works pretty well in bright light and not at all when the environment’s too dim. (In that respect, it provides an uncanny simulation of real paper.)

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The first morning of demos here at DEMO has begun, and the second product unveiling of the day looks potentially cool: A company called Plastic Logic previewed an e-book reader that uses electronic paper technology similar to that of the Amazon Kindle and Sony Reader–but in a larger, thinner form factor with a full touchscreen.

Plastic Logic says that unlike the Kindle and Sony, its product is aimed at folks reading business documents and magazines (the demo involved a copy of The Economist). The reader includes markup and annotation features that leverage the touchscreen, and the 8.5″-by-11″ screen size obviously makes sense both in terms of providing more real estate and mimicking the typical size of business documents printed on plain old paper.

I have and enjoy using a Kindle, but I’m still something of an electronic paper skeptic: The displays are monochrome, with gray text on a gray background, and there’s not enough grayscale to do decent photos. (I remain baffled by hype for electronic paper that touts it as looking like real paper or being wonderfully legible.) And while the Plastic Logic reader has some advantages over a notebook–it’s a third the weight of a MacBook Air and the electronic paper technology lets it run for days on one battery charge–I’m curious whether the business types that the company wants to cater to will buy and carry both a notebook and an electronic reader.

So far, I’ve only seen the Plastic reader from my seat in DEMO’s demo hall; I’m looking forward to seeing it up close. The company didn’t mention a price or a shipping date–actually, even the product name is TBD.

I was an ultra-early adopter of Amazon’s Kindle e-reader: I plunked down my money for one last year on November 19th, the day it was introduced. The review I wrote at the time for Slate wasn’t a rave, but it turned out to be one of the more upbeat early evaluations: The Kindle debuted to a thorough drubbing in the blogosphere for everything from its aesthetics (admittedly dreary) to usability (it’s tough to pick it up without accidentally flipping a few e-pages). Even the name prompted jeers.

The Kindle may have been anything but a critical darling, but there were early signs that it wasn’t a flop, either. It quickly sold out and was backordered for weeks, and Amazon.com devoted a remarkable amount of precious real estate on its home page to promoting the device, something it probably wouldn’t have done if it were dead on arrival. I enjoyed using mine, and when folks asked me about it, I usually began by saying “It’s not perfect, but it’s nowhere near as bad as people are saying it is…”

Fast forward to today: All of a sudden, the Kindle’s reputation has gone from so-so to go-go, a transformation that’s rare in the tech industry. A couple of weeks ago, TechCrunch reported that Amazon had sold 240,000 of them–not iPod numbers, but not bad, especially for a gadget that’s only available from one seller, and only via mail order. (How many iPods would Apple have sold if you couldn’t see one before buying?) And now one analyst is saying that Kindles could be a billion-dollar business for Kindle next year, while another speaks of the company selling $2.5 billion in e-books by 2012.

Well, maybe! After nine months of Kindle ownership, though, my relationship with the device is still a strange love-hate affair. Every time I use it, I see both the giant potential of e-books and all the ways in which the Kindle falls short of realizing it.

Here’s the stuff about the Kindle that continues to bug me:

The e-ink screen still stinks. I don’t understand why it’s the first thing Amazon mentions on its Kindle page. (“revolutionary… a sharp, high-resolution screen that looks and reads like real paper”). Yes, the battery life is terrific, but the display is grey-on-grey and tough to read unless the light is just right. And it basically doesn’t do photographs–they look like bad Etch-a-Sketch drawings. The display is the single thing I like least about the Kindle.

It’s an electronic device. The Kindle’s battery life is impressive; more impressive still is the fact that you don’t need to worry about battery life at all when you’re reading a real book. (When I haven’t used the Kindle for awhile, I need to find its power brick and recharge it before I can do anything with it.) Also: I do much of my reading on airplanes, and I can’t use the Kindle during takeoff or landing…which means I need to bring more traditional reading matter with me.

It complicates book shopping. I still like to browse in real bookstores, and while I’m not above the notion of finding a book I want in a store and then buying the Kindle version, I haven’t been able to easily determine whether a Kindle edition exists while I was still in the store. Sometimes I’ve just gone ahead and bought the real book; sometimes I’ve made a mental note to check for a Kindle version when I got home. (Now that I have an iPhone, this may not be so much of an issue: I should be able to check Amazon’s Web site on it while I’m out and about.)

I fret about its DRM. In the music realm, Google, Yahoo, and Microsoft have all decided to shut down DRM servers, thereby crippling media they’d sold people. What’ll happen to my Kindle books if Amazon.com decides a few years from now to withdraw from the e-book market? Or if I see an e-book device from another company that looks more appealing?

And here’s what I still love about it:

Hundreds of books in my briefcase. I don’t want to lug even one hardcover on a trip; with the Kindle I can tote the equivalent of hundreds of them.

The wireless interface. The Amazon.com book-buying-and-downloading service works wonderfully well–it’s far more impressive than the hardware.

The price of the books. Most of them are ten bucks or less, versus $25 or $30 for a new hardcover. Yes, I know that that’s only after you pay hundreds of dollars for the Kindle. But I’ve done that–and books feel more like impulse purchases with the Kindle than in hardbound dead-tree form.

What’s my bottom line on the Kindle? I still think it could be a big deal–but only if evolves at least as rapidly as the iPod has done during its first seven years. I think that e-ink is likely a dead end and that Amazon should release a Kindle with a more traditional color screen, even if battery life takes a major hit. The user interface needs to get less kludgy. You need to have some confidence that the books you want will most likely be available in Kindle form. And so on and so on.

If Amazon doesn’t get all this stuff right? I think there’s an alternate scenario in which e-books become very popular–but on the iPhone and iPhone-like smartphones rather than on dedicated e-book readers. Matter of fact, I’m using and enjoying an iPhone e-book reader application called Stanza. It’s not a Kindle replacement, since it’s library of books is mostly made up of free public-domain classics, not the new bestsellers that you can get on the Kindle. And I have enough trouble preventing my iPhone 3G’s battery from dying without using it to read books.

But Stanza leaves me hungry for an e-book reader with a display and interface that’s as nice as the iPhone’s, and a library of books that’s as wide-ranging and easy to acquire as Kindle’s. I don’t know whether it’s going to be Amazon or Apple or someone else who makes this device, but I’m looking forward to adopting it just as quickly as I snapped up the Kindle…