We have both a Kindle and an iPad 2 in the household. My wife uses the Kindle and I use the iPad though there is a little overlap from time to time.
Others have pointed out the advantage of the Kindle for reading outside. And coming from the Pacific NW, the UK of the US, I'd say that you don't have to be lying in the full sun at the beach to see the difference. Having said that, however, the iPad is usable in all but the brightest sunshine. (Yes, Seattle does have sunshine from time to time.)
Overall, the Kindle's e-ink display is superior for extended reading if the backlighting of the iPad produces eye strain for you. On the other hand, that same backlighting eliminates the need for a booklight while reading in bed at night. All in all, each device has advantages and disadvantages.
The form factor is definitely a Kindle advantage for book reading. (My wife has the smaller version.) I find the iPad perfectly readable in my lap but I have to admit that for reading in almost any position the Kindle is a better choice. It's the size and little more than the weight) of a trade paperback. The iPad is like a VERY heavy magazine. On the other hand, the iPad is far better for reading large format magazines, especially if you want to emulate the color of a magazine. (For color you have to select another e-reader such as the Nook Color.)
In addition, my wife can put the Kindle in her purse and not even think about it. Not so with the iPad. Compared to a laptop the iPad is a marvel of portability, but compared to the Kindle, it requires significantly more space and accessories.
Comparisons in terms of connectivity are a bit trickier. 3G connectivity is free with the Kindle if you purchase the 3G model at a slightly higher price. And that might be an advantage if you do not have 3G connectivity for your iPad. At least for us, however, it's a nit. (I use a mifi hotspot router from Verizon) that provides cell-based wifi for both devices. And frankly, my wife downloads books when she's at home with our wifi home network.)
Finally, the battery life of the Kindle versus the iPad bears mentioning. The iPad's battery life is excellent for a tablet but it doesn't come close to battery life of the Kindle. I use the iPad frequently enough to need to charge it every day. My wife charges her Kindle at most once a week. It's an apples to oranges comparison (pardon the pun), of course. If I used the iPad only for the same functionality as the Kindle, the iPad's performance on this measure would look much better. But you're not going to do that.
All in all, I'd say that if you can afford both devices, the Kindle (or another e-reader) may be worth the investment. It certainly is in our household with two users. My wife can become obsessed with a novel and if she didn't have the Kindle she'd monopolize the iPad for days at a time.
On the other hand, if you're looking for a perfectly adequate (though not optimal) e-reader along with all the other functionality a tablet provides, the iPad can do the job.
