The best approach I am aware of is to take your copy of ereader2html.py and modify it to (a) write out the pml file instead of converting to html, and (b) re-write high-ascii characters using the \aNNN syntax, where NNN is the value of the byte in octal? decimal? (I forget; check the mobileread wiki page for the format). That works around the whole problem by making sure that the contents of the pml file are fully escaped.
THEN, use Drop Book to create a new (DRM-free) ereader file, import that into Calibre, and off you go.
One reason this is a good choice is that Calibre's conversion to html seems to work much better than ereader2html's version.
As always, your mileage may vary, etc.
Xenophon
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