edbro--
Did you install the 7-30-07 update for Book Designer? I'm pretty sure you need to do that to add conversion to LRF support.
You need to download the update and extract everything from the zip. Then copy the files over to the folder that BookDesigner installed in--making sure to overwrite the existing files.
See
https://wiki.mobileread.com/wiki/Book_Designer
Hope this helps!
dordale