Here is my wish list. I have little experience with eReaders so it is print oriented.

Ideally I'd like:
A feature that let me tag a word for inclusion in the index as I am editing.
A feature that would allow me to to do a second level entry - that alphabetizes under the first level.
A feature that would allow me to add a word in the index, then step me through each occurrence of that word in the book allowing me to choose to include that page in the index, to exclude it, and to make it the start or end of a range.
A feature that would allow me to go through the book looking only at occurrences of words that are included in the index which I have not yet included or excluded.
On export the index would need to be generated dynamically to get the page numbers right.

So, here is an example:
I write a book on art. While I am writing I use the following:
On page 10: Blue is beautiful <<index tag : Blue>>
on page 20: Blue is pretty
on page 30: The next 15 paragraphs will discuss shades of blue <<index range start tag : Blue>>
on page 35: <<index range end tag : Blue>>
on page 40 Writing this book made me feel blue.
on page 50: To make purple mix red and blue <<Index tag : Blue : use in making purple >>
on page 55: To make green mix yellow and blue <<Index tag : Blue : use in making green >>
on page 60: Indigo is sort of like blue <<index tag: Blue>>

I would run the index check function and it would prompt me as to whether I wanted to include the instances on page 20 and 40 because the word blue appears and is not tagged.  I would choose to include 20 and not 40.  The index would then look like this:

Blue .............. 10, 20, 30-35, 60
   use in making green...........55
   use in making purple..........50