I recently came across a little gem called Calibre e-Book Management software. It will convert .doc and .docx files directly to .mobi or .epub formats.
I haven't yet tried it with epub files but I have tested it out on .mobi files with my Kindle device and it works really well. It even correctly interprets my footnotes, creating internal links within the story, which is fantastic for me (I like footnotes!)
As yet, I haven't really done anything advanced with the software, but it was free, it does everything I've asked of it so far, and it appears to be a tidy little bit of kit.
I took my car to a quantum mechanic... It may or may not have been repaired.