Note that the actual limit is 270KB not 300KB.
With large LRF books, the problem is that the SONY reader has to preformat them and it fails. The SONY desktop software does the pre-formatting, which calibre doesn't, so sending large LRF books with the SONY software will be more robust.
AS for why the original LIT->EPUB conversion dodn't work is interesting. Please opena ticket and attach the de-DRMed LIT file.
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