I have the exact same problem on my iPhone - I don't know if it was the latest iPhone upgrade (2.0.2) or the latest version of Audiobook Builder (1.1.10) but about mid-August my iPhone was no longer able to play Audiobook files - it starts, stutters after a few seconds and then nothing. The book files work fine in iTunes and also on an iPod, ,just not on my iPhone.
I saw the post below on August 21 on Splasm's forum and I keep coming back, hoping to see the fix but nothing yet. Is this something that is being worked?
Couple of reports already from iPod touch users who've just upgraded to firmware 2.0.2 letting us know that only the last Part of their multiple Part Audiobooks are playing properly now. We've duplicated the issue with a 64Kbps/32kHz/mono test file 12 hours in length here and we're about to test on an upgraded iPhone 3G. Stay tuned, answers are coming.
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Keith Gugliotto
Primordial Sea Captain
Splasm Software
http://www.splasm.com