I had found (no DRM) LIT files to be un-reliable
They would open and allow you to start reading, but prone to locking up the PEz after periods of user inactivity.
I tend to convert the files to EPUB using Calibre with great success.
Size does matter
Small files <200K seemed to have less problems for me.
I am using the November FW (with non-visible clock), as I thought the Dec 09 FW was really slugish. Different people seem to get different results, which is even more strange to me.
You might try a fresh download (do not use the same copy you had) and Flash again.