You have a couple options with reading CHM files (a type of eBook) on your Touch or your iPhone. The two I explored were converting the files or using an application from the app store on iTunes called iCHM.
Converting files provides many options some of which are free. I downloaded something from CNET but decided that iCHM was going to be easier so I decided to go that route.
Download iCHM Lite: 
Download iCHM:
After installing iCHM Lite I decided it was worth $6.99 to buy iCHM. iCHM allows you to open a web browser that will point to an iPhone or Touch on your local network and upload files to read. After uploading the files you have control over the files similar to eReader or Stanza. iCHM will allow you to sort through chapters fairly easily and read the content of your new eBooks.
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Hey, try a better one: CHMate
[Reply]
alex Reply:
August 14th, 2009 at 1:36 AM
I removed the link above until you offer the reasons that this application is better. If it really is a better application we would love to see the comparisons that prove it is better. You can also provide a QD representative a version of the software so we can review it and then we would be happy to post a response with our opinion if the software is better or not. I did check and the CHM reader I mention has average reviews though the one you mention does not have any reviews to date.
[Reply]
realazy Reply:
October 25th, 2009 at 10:16 AM
alex,
CHMate 1.1 has released and received many reviews. Undoubtedly, it’s the best one now.
[Reply]
alex Reply:
October 27th, 2009 at 2:12 PM
Hello realazy,
It still appears to be about the same to me as iCHM. In a quick test I also like the error handling for end users better in iCHM versus CHMate, It is a huge bonus that it is currently free but at $4.99 I personally would prefer iCHM over CHMate.
Thanks.
alex
[Reply]