Pocket PC Thoughts and its readers are reporting that MS-Reader ebooks that use DRM will not work under Windows Mobile 5.0. The issue affects both phone and non-phone devices.
As much as I liked MS Reader, I gave up on it a while back; I simply had too many issues with the DRM. After losing access to a couple of books, I stopped using MS Reader. Fortunately, there are alternatives out there including Mobipocket Reader and eReader
It sounds like Microsoft has taken yet another giant leap backwards in its support for ebooks.