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Personally I use a tool called "BookDesigner" to create the book in HTML, and then "MobiPocket Creator" to convert it to MobiPocket format. Both are free.
It is not a trivial task to create a nicely-formatted book. I generally reckon on perhaps 2-3h work for the book itself, and anything up to several hundred hours to properly proof-read it, if the text is not in a good state.
My personal "project" here at MR has been attempting to create "definitive" eBook editions of the complete works of Charles Dickens. All the books are now available here and, after about 2 years, roughly half have been thoroughly proof-read. It generally takes me 1-2 months, at an hour or two a night, to proof-read one of Dickens' novels.
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