A free epub creator/editor, very easy to use and with very good results.
http://code.google.com/p/sigil/

I post again the app submission, this time obeying the Rules for applications' submission.

Sigil is a multi-platform EPUB ebook editor with the following features

Online Sigil User's Guide, FAQ, and Wiki documentation
Free and open source software under GPLv3
Multi-platform: runs on Windows, Linux and Mac
Full UTF-8 support
Full EPUB 2 spec support
Multiple Views: Book View, Code View and Split View
WYSIWYG editing in Book View, supporting all XHTML documents under the OPS specification
Complete control over directly editing EPUB syntax in Code View
Table of Contents generator with multi-level heading support
Metadata editor with full support for all possible metadata entries (more than 200) with full descriptions for each
User interface translated into 15 languages
Spell checking with default and user configurable dictionaries
Full Regular Expression (PCRE) support for Find & Replace
SVG support and basic XPGT support
Supports import of EPUB and HTML files, images, style sheets, and fonts
Documents can be validated for EPUB compliance with the integrated FlightCrew EPUB validator
Embedded HTML Tidy: all imported files have their formatting corrected, and your editing can be optionally cleaned
Native C++ application


I am using this software very often, and had integrated it with Liberkey, simply using the installed version's folder. It makes the creation of an e-book a breeze, as easy as creating a word document. You can insert a cover, pictures, metadata and validate the epub before saving it. Using Calibre, you can convert then the epub into mobi, or whatever format you prefer.

Author's page: http://code.google.com/p/sigil/

Download page is available from the author's page.