Design
The Kindle 2 is thinner--it measures a svelte 0.36 inch at its thickest point--and weighs 10.2 ounces. For the record, it's not the thinnest mainstream e-book reader. That distinction belongs to the Sony PRS-505, which comes in at 0.3 inch thick (the PRS-700 is 0.5 inch thick).
One thing that hasn't changed much is the height and width of the new Kindle. Some people have complained that the original Kindle should have been shorter and forgone the keyboard, like the Sony Reader did. Whether you're a fan of the keyboard or not, it's worth noting that the Kindle 2 is actually slightly longer than the original, measuring 8 inches from top to bottom.
The keyboard
Part of the reason for the elongation is that Amazon has devoted a bit more space to the keyboard, with some additional room between the keys and a more simplified, streamlined look (the keys are circular and the space bar is longer and better placed). This was a good move, as the keyboard is easier to use.

As with the BlackBerry and other shrunken QWERTY keyboards, you enter text using your thumbs. The Kindle 2's keyboard comes in handy when entering notes and annotations while reading (they're saved), keying in text for searches in the Kindle Store, and typing in URLs when surfing the Web. We also appreciated that the home button is now much more prominently displayed on the side of the device, right in the middle above the "Next page" button. Before, it was tiny and buried at the button of the keyboard.
The screenIn case you haven't heard already, the Kindle 2's screen is technically considered an electrophoretic display, which Wikipedia describes as "an information display that forms visible images by rearranging charged pigment particles using an applied electric field." Like some other electronic paper products, the Kindle 2 uses "e-ink" technology, which serves to make the letters and words on the screen look more printlike in their appearance.
The interface
The original Kindle had a little rolling wheel to assist with navigation. The Kindle 2 moves to a five-way rocker button that's more straightforward and helps solve some--but not all--of the quirky navigational issues the device has.
Amazon has made some nice tweaks to the interface and has made it easier to access the embedded dictionary to look up words, but it's far from a total revamp. You're still left with moments when you're not sure whether you should go forward or backward, or which button you should hit to get to where you want to go. In other words, it's not entirely intuitive. Kindle newbies will have to play around with the device for a day or two to really get the hang of it (that's pretty good, all things considered).
The Kindle 2 is clearly better than the original Kindle, particularly if you're willing to forgive the sealed battery and lack of a memory-expansion option. And while it's not without its shortcomings and quirks, the Kindle 2 is a sexier device now, and the overall experience of reading, buying, and even listening to electronic books has taken a nice step forward.
Summary:
Slimmer and sleeker looking than the original Kindle; large library of tens of thousands of e-books, newspapers, magazines, and blogs via Amazon's familiar online store; built-in free wireless "Whispernet" data network--no PC needed; built-in keyboard for notes and navigation; a faster processor speeds up the device; with 2GB of internal memory, it's capable of storing 1,500 electronic books; font size is adjustable; improved battery life; displays image files and plays MP3 and AAC audio; compatible with Windows and Mac machines; new Text-to-Speech feature allows you to have text read aloud. No expansion slot for adding more memory or accessing files; files such as PDFs and Word documents aren't natively supported, and need to be converted at 10 cents a pop by Amazon; no protective carrying case included; battery is sealed into the device and isn't removable; hardware and content is still too expensive.

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