FBReader can read CHM files, but it may hang if they are very large. The limit may be content dependent, but it failed for me on a ~7 MB CHM file (that was readable using FBReader on a Windows Desktop).
The Windows MobiPocket Reader is supposed to import CHM files and export a .MOBI file which is then readable using the iLiad's MobiPocket Reader (and probably by FBReader too). However, this did not work on the few CHM files I tried.
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