Thanks wallcraft. I tried the CHM2LIT. It exploded the OEB fine but when it started making the LIT file in the third step, it gave the error.

Is there any way to know what is causing this chm comversion error? I have the chm authoring program so I will have to do a trial and error by exporting each main tree node to a chm file and see if that works in mobipocket to isolate the node which may be causing a problem. I hope that works.