Hi there,
The best tool to create nice LRF books from LIT files is to use
Book Designer
Also check the mobileread wiki for details on how to install it correctly on Vista/Windows 7
The following threads will be invaluable to get you started. It takes a bit more effort but it creates the best LRFs. However, Calibre's LIT to LRF is quite good and I have used it a lot for well formatted LIT files. It is definitely faster than BD, but BD gives you a lot more control.
Book Creation Tutorials
Book Designer Hints and Tips