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Once again..the million dollar question!, I tried a (legal) CHM on the Hanlin V3 and the iLiad. I was able to convert this 8 MB CHM to MOBI using Windows MobiPocket Reader. It took 10-15 minutes and resulted in a 16 MB MOBI. The first two screenshots are from Windows MobiPocket Reader on the MOBI version of the CHM.
I did not find that the MOBI was usable on the Hanlin, because of difficulties navigating the links, but it worked well on the iLiad and it also works well on my Kindle 1. The last three screenshots are from this MOBI version on the Kindle. There are still perhaps issues with the display of code fragments on the small screen, but if Windows MobiPocket Reader will convert from MOBI to CHM (it does not always work) then the CHMs are readable on the Kindle.