The nook works perfectely well with the Project Gutenberg books. I recently found this fact out and downloaded over 50 books and they are all nicely sitting on my nook now. The only drawback is that they are seperated from your purchased books and are found only in the My Documents section of the nook. (I do not know if this is a rule, but I haven't found a way around it.) I would have liked to see them right along side my purchased books.

Thanks to http://manybooks.net/, either would work perfectly well for texts in the public domain.

Gutenberg has all their books in Mobipocket as well, which the Kindle supports natively.