Have you tried Amazon's tools (Kindle Previewer or Kindlegen) to convert an epub to mobi to see if your chapter navigation then works? I'd suggest converting to azw3 but I seem to remember the Kindle Keyboard has never received the ability to handle KF8 in any firmware update.
Hmmm... should mention that kindlegen is a command line tool. Very powerful and a bit of a learning curve.
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