Unfortunately, iBooks are only available through an iPad itself, not through iTunes on your computer. Although the actual iBook app is really a nice e-reader, I think you will find that Apple treats the iBook store as the red-headed stepchild. It just doesn't seem to be a high priority for them. The selection is pretty poor at present... and doesn't seem to be getting any better!
As far as selection, the incumbent is still Amazon. You can download the free Kindle app and anything you can read on an actual Kindle device, you can read on an iPad.
Barnes & Noble and Borders also have their own apps, but they still can't touch Amazon.
Another really great reader app is called Stanza. It is only a so-so reader, but there are links to several content providers within the app for both paid and free content. The #1 free content provider for public domain books is called Project Gutenberg with over 33,000 titles and can be accessed through Stanza.
One of the best all-around reading apps is called GoodReader... and it really is! It costs a whopping 99¢!