My wife, a physics graduate student, is constantly puzzled by the fact that the paleontology community hasn't adopted LaTeX. Odds are that most of you reading this (someone does read this blog, right?) have never heard of LaTeX. It's somewhat akin to HTML, in that it's essentially a markup language for scientists. Thus, it's a little scary for those who have never ventured beyond the confines of their word processor. But. . .it's incredibly powerful. There are a whole host of bibliography management tools for LaTeX - JabRef is one example. The main reason LaTeX hasn't entered my sphere is because I collaborate with a lot of people who don't use it - so, there isn't a lot of incentive for me to learn it. Maybe one day, though. . .
There isn't really a "perfect" open source reference manager out there yet. All of the packages have significant strengths, but also sometimes significant weaknesses. I think that the next year will experience major gains in open source reference managers, and hopefully by this time next year there will be several extremely good options. For the time being, I recommend experimenting to find one that works for you. Zotero is my current reference manager of choice - its integration with Firefox and capability to easily dump formatted references into a word processor move it to the top of the pack.