ManyBooks has the best combination of selection, design, and features. Best of all, they provide different download options so it is easy to get the text onto your iPod or the pdf onto your PDA. (For more info on reading ebook text on your iPod, check out this site).
The famous Project Gutenberg has over 17000 free ebooks. Be sure to check out their Top 100.
Open Library is probably the most beautiful ebook site. Check out the high quality resolutions of all these old prints. If you are interested in lithographics, also check out all of the images over at Bibliodyssey.
Bartleby's is a good collection of great literature and non-fiction.
The UPenn on-line library is another well-known archive, especially for their collection of banned books.
Planet Zikri has a ton of networking and programming ebooks. If this is a topic that interests you, be sure to check out the programmingebooks.tk site that i mentioned the other day and this russian site, which is rapidly increasing in size. Also check out the O'Reilly archives that I previously listed and O'Reilly's own open book project.
Bibliomania and Planet PDF's are also decent sites, although much of their content is duplicative to that of other sites mentioned above.
I've also come across a few good pages with links to other ebook sites. Be advised that some of their links might be dead:
An edaboard post has a very long list of sites with content ranging from the Dead Sea Scrolls to Winnie the Pooh. The start of the list is very programming heavy, but scroll down and you'll find some good literary links. Note that not all of the sites listed here are free (such as the excellent but pricey Octavo collection of rare books).
e-book.com.au also has a very long list of recommended sites, including a good list of non-English sites.
SnakeOil Labs list their favorite 10 ebook sites. Some of them are already mentioned above, but this is a nice summary.
Textbook Revolution, of course, also has a great list of sites with free ebooks. While you're at it, it's always a good idea to see what's new at Textbook Revolution (or subscribe to the feed for regular updates).
Get Cheap Books runs a meta book-search over multiple sites. Think of it as a Kayak or Orbitz for book-sellers.
Literature Map is a fun site where you can enter a book or author you like in order to find recommendations. The search results appear as a screen (pictured) with books and authors floating in proximity to your query based on the degree of similarity.
What should i read next is another book-suggestion site with an ever-growing recommendation database.
Library Thing has been heralded as the del.icio.us for books and has many fervent supporters. I'm not so interested in cataloging my books, but it is a nice way to explore other readers' libraries.
Alibiris helps you locate out-of-print books that are hard to find. I have used it on several occasions and it works very well (especially if you have patience and can give the search a few weeks).
If you need to make a proper bibliographic citation, go to Easybib . They have a paid, pro-version, but the free composer works well-enough for me.
And finally, Levenger has "tools for serious readers" including leather book-covers, elegant pens, and other reading related tools. A good source for Christmas lists.
With all these free options, it's hard to know where to begin. I can't answer that question, but I can relay you a warning courtesy of Sherlock Holmes:
"You see," he explained, "I consider that a man's brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowledge which might be useful to him gets crowded out, or at best is jumbled up with a lot of other things so that he has a difficulty in laying his hands upon it. Now the skilful workman is very careful indeed as to what he takes into his brain-attic. He will have nothing but the tools which may help him in doing his work, but of these he has a large assortment, and all in the most perfect order. It is a mistake to think that that little room has elastic walls and can distend to any extent. Depend upon it there comes a time when for every addition of knowledge you forget something that you knew before. It is of the highest importance, therefore, not to have useless facts elbowing out the useful ones." - A Study In Scarlet
But, hey, if the facts are going to be useless and elbowing, at least they were free.
1. Jason at TBR points out two other sites that I should have mentioned. The first is the Internet Archive. You may or may not be able to find audio of Grateful Dead live shows, but they still have a ton of ebooks. Another good site that Jason brought to my attention is the ebook and etextbook list at the e-learning centre. Thanks, Jason!
2. Rapidshared.org lists all the 1000s of ebooks stored on the Rapidshare.de fileservers.
3. Check out Hackemate.co.ar for ebooks in various formats in Spanish.