I've not used any of the tools mentioned, nor do I own any lit books to test them on, but if a good conversion is possible I'd buy some. Personally I don't buy DRM stuff unless a) I know in advance I can remove the DRM, or b) I'm 100% sure I'll be able to use said format on any device, forever. So ironically, the ability to remove DRM results in an increase in sales to THIS customer. I don't redistribute - I just like interoperability.
Anyway, I noticed you converted from .lit to HTML... HTML has the ability to hotlink within the document - does it lose the linking in the .lit when it converts to HTML? There must be a way to convert from HTML to PDF, I would think, that would likely keep the linking? For larger works that I hope to read on the Reader (when I finally get one), linking within them would be critical (like being able to hop where I need to in a Shakespeare "complete works" type of deal).
One could also alleviate this problem somewhat if Sony would just put a search capability into with a firmware update or something.
Remembering a part of a quote from a book is frustrating if you don't have any idea where exactly to find it. Does the Connect software you use to manage your library on the PC have a search capability, at least?