Ok, I found something that should do the trick. It's very similar to the ringtone workaround for iTunes.
Select the Audiotrack that you have that is mp3. Convert the selection to AAC. Once it is converted to AAC, delete the original mp3 file and view the new AAC track in Finder. Select get info and then change the file extension from .m4a to .m4b. Then you simply add the new track.m4b file to your library and it should show up in the Audiobooks tab and sync to your iPod as an Audiobook file.
Have worked over 4 hrs.trying to download an audiobook to iPhone 8Mg.
It is almost a joke. Went to Splasm.com and downloaded a introductory
software which claims to change format for iPhone. Audiobook Builder
can be a purchased software for $9.95. I jumped for the ten dollaris and still
can't figure out how it can work since I can't Open my audiobook from iTunes so I can open it in their dialog box for reformatting. Sorry I can't help you
anymore than this.