Can you read DRM-free MOBI files? Try one from the
Mobi/PRC Books sub-forum. I use
Dickens, Charles: A Tale of Two Cities for testing. You can try copying it via Windows MobiPocket Reader and also copying it manually to a location other than the Mobipocket directory to see if it works (e.g. from Books on a CF card).
If you can't read DRM-free MOBIs then there is something wrong with your iLiad installation.
Otherwise, your best bet is to buy a cheap ebook from mobipocket.com (they are usually the most expensive site, so normally FictionWise or BooksOnBoard would be better choices) and when it does not work post a question to their forum.