I experienced the same thing as well. After trying different conversion tools but failed, I sent the UTF-8 txt files to "name"@free.kindle.com and they all got converted properly, both Simplified and Traditional. But the titles still may show boxes. Seems like their 'native support' is not exactly what I had in mind.
I don't recall seeing the following when I ordered the K3, but now K3's description on Amazon has the following:
"Support for Non-Latin Characters
...
To view your personal documents with non-Latin characters on your Kindle, send your file as a Microsoft Word document (DOC) attachment to your Kindle's e-mail address ("name"@free.kindle.com)...Loading TXT files containing non-Latin characters over USB is currently not supported as some characters may not display properly."
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