I think that all the readers that have epub can be used for ebooks from libraries. You can check with the library websites. They also sometimes have mobi-formatted ebooks, but the DRM doesn't work with Kindle.
I use Cybook Opus (Bookeen is the company) for mine. I often think about getting a Nook or the new Kobo (in black) so that I can read with a cover on it. Haven't seen any jacket-like covers for Kobo yet, however. I keep holding off, because I can't justify spending for just this reason. The Cybook Opus works very well for me, except that my light doesn't clip on to it well and I don't have a jacket-type of cover.