I was frustrated because of not being able to display embedded images in kchmviewer (I tried a couple of IPKs, 2.5 and 3.1.2, and it didn't work.) I was getting ready to compile my own, when I realized that there is a wrong setting in qtconfig which was preventing the images from being shown.
In qtconfig, go to Library Paths tab, and remove /usr/bin/qt/lib. Instead, add these two entries:
Now I can read CHM documents with their embedded images, and with the ability to set proper language and character encodings.