How about BookWurm? Sounds like you were trying to be edgy and cool... Look at me! I'm replacing an O with a U and it sounds kinda German!
I think there are several good readers out there. Have you tried a few?
Having said that... I've been playing around with the Compact Framework 2.0 and slapped together a little proof-of-concept type app based around the web browser control that ships with the framework.
Here's what I've discovered...
It is dead easy to load up an HTML file and display it. That part took about 10 minutes...
The downside is that you don't get programmatic access to the document object. Why is that bad? It means you can't change font style/size/color/etc. on the fly. You basically point to a file and it loads. The only way to adjust the appearance is to change the HTML itself and reload the file. I had hoped I could access the document object and change the style sheets at runtime.
I've pulled a couple of books from the Gutenberg project in HTML form and loaded them. Unfortunately there doesn't seem to be a standard for setting up the HTML versions of these things. That means it would be wicked hard to make a program that could reliably set display properties like font size, etc.
Some of the books are set up with style sheets embedded, but there is no rhyme or reason as to how the sheets are set up.
That pretty much kills this app for 90% of the users out there. BUT you also said you thought it should be able to edit the HTML... Hmm. That means you could change the style sheet by hand. Not pretty, but for the 10% (or less) of users willing to do this, it could be a half-way decent reader. No WAY you could make such a thing and sell it, but you said open source... Hmm again...
The edit function would be difficult on large files. I'm trying to work out the best way to approach this. My guess is that you'd just have to pull a section into a pure text editor and edit the raw HTML by hand. Not pretty, but functional (again for the select few only...).
Bookmarking would be simple in HTML using the anchor tag, but I'm still figuring out how to get the bloody control to tell me where it is in the document...
By default you also get the ability to read ASCII files. To change the appearance or do bookmarks, you would have to convert it into HTML. The upside is that I could insert a standard style sheet during the conversion process...
I'll play for a few more days and if it looks promising, I'll post it somewhere you can take a look.