@Keepsweeping - welcome to MobileRead.
You really need to read the last page of this thread - this topic has come up rather repeatedly.
Right now the official version of the plugin does not support azw3 (MOBI will work perfectly fine), but there is a link to an unofficial version which does. The official version will undoubtedly be coming "soon" - I know meme watches this thread and no doubt that the recent firmware update for Kindle 3 owners has more people wanting to use azw3 format...