The most often recommended option is Book Designer, see
Book Designer Graphical Guide. To setup Book Designer, see
Wiki: Book Designer. Finally, HarryT's
Tutorial - How to Create a MobiPocket eBook covers how to use MobiPocket Creator to go from the Book Designer book to a properly-formatted MobiPocket book with large images, a functioning "Table of Contents" menu item, etcetera. HarryT's
Book Creation Tutorials covers about the same ground as the Graphical Guide, but in more detail.
The above may be overkill, as Leep says you can certainly try going directly to MobiPocket Creator or you could export a PRC file directly from Book Designer.