The Hanlin (V3 and V5) claim CHM support but in my experience it does not work.
FBReader (used in the PocketBooks) does support CHM fairly well, but its downside is that it reads the entire CHM file into memory on startup. Since CHM files tend to be large this can take a long time, and can hang the device if the file is too big. You can try FBReader's Desktop versions to see if its CHM interface is ok for you. However, a typical PC has much more main memory than any ebook Reader.
I would expect WinCE-based devices to perhaps support CHM, but I have not seen any reports one way or the other on the new iRiver Story (for example).
The multi-level Table of Contents that is such a strong feature of CHM is also available in ePub. However, so far as I know, there are no explicit CHM to ePub conversion tools available. In principle CHM -> HTML -> ePub should work, but I doubt it is acceptable in practice.
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