You could try importing CHM into MobiPocket Reader on a Windows machine and see if the resulting .prc file is readable (again under Windows). There is also an alpha build of version 6.1, see
Mobipockets v6.1 is up in the beta center that might have better CHM support.
I tried a couple of large (~5 MB) CHM files with FBReader on the iLiad, and they hung the machine - probably because of memory requirements. Smaller CHMs, with simpler TOCs, worked ok. The big CHMs also failed to import into Windows MobiPocket Reader.