The upfront cost of an e-reader has fallen considerably, but it is still a substantial investment. However, e-books themselves are a good deal cheaper than hardcovers and marginally cheaper than paperbacks; but they're almost always more expensive than used books. Depending on your current reading habits, an e-reader could, or could not, save you money in the long run.
Not all books are offered on all e-reading formats. Amazon currently has the largest library, but that could change as publishers and distributors haggle over prices and contract issues. While their catalogs may not yet be complete, e-readers give you instant access to their entire collection, no matter where you are.
Proprietary formats are one of the biggest drawbacks to e-books today. In a move to control what is read on their devices and protect the printing rights of publishers, e-reader manufactures have locked their readers into strictly controlled formats and software. This means that you can only purchase e-books from the company's store and that books can not be shared between users.
Transporting an e-reader is roughly equivalent to carrying a paperback, and an e-reader can hold dozens, sometimes hundred of titles.
The ability to search an e-reader for a specific phrase or passage is a real advantage, especially for students. Most e-readers also let you annotate your e-books.