I have used the ABC Amber CHM Converter with great results. It does convert the data (text) within the CHM file and also converts the graphics that are included. Output options include the standard offerings of PDF, DOC, RTF, etc. It preserves the original links from the CHM file. I have included a PDF conversion of the program's CHM help file as an example of the output the program creates.
They also say that they will soon be offering LRF format for Sony Readers; but, sadly not in the current version. There is a link to the software in the MobileRead Wiki
. It is a commercial program that does offer a free trial period of a prior version.
Another program I have tried with mixed results (and a higher price tag) is AIK Research Labs' chm2web.