So far I’ve managed to convert a .txt file into .html (using the Mobipocket Reader) and then into .prc (using the Mobipocket Creator), plus adding a cover pic and a table of contents. I’ve found that the latter doesn’t work if it was already included in the .html file. But use the Mobipocket Creator to create a table of contents for you and the result in .prc looks just fine.
Today I tried to convert a html file with pictures into .prc — which didn’t work at all. *sigh* Some of it is due to the source code of the html, but as to the other stuff … who knows? I hope I’ll manage to figure this out, though.