Some .lit files are just strange.
You could try converting to .txt and then to mobi
Many .lit file I have had to convert to .rtf and replace non standard formatting
Probably a better way to do it but this works for me and is fairly quick when you get used to it.
I have a Sony PRS 600 so I had most of my files already converted to epub. Now I have converted the epub to mobi for my mother's kindle 3 and so far they all look good.
Some viewers are more tolerant of non standard carriage returns etc. than others.
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