Are you using iTunes 7.5?
We've found that we can only reproduce the issue with iTunes 7.5. And, we came across a couple of similar reports of issues with iTunes 7.5's Chapters menu:
http://discussions.apple.com/thread.jsp ... 4�
http://forums.ilounge.com/showthread.php?t=211136
According to these reports, the issue can also affect Podcasts and Movies with chapter markers. We've also confirmed it can occur with the output from Apple's own ChapterTool. The trick to getting it to happen, in our tests, seems to be including at least one non-US ASCII character in at least one chapter name. the US ASCII part is hypothetical at this point, as we haven't had time for conclusive testing. However, directly overwriting the offending characters in the chapter name with something simple, like a US ASCII alphanumeric, with a hex editor cures it.
On a related note, thanks to the hunt we went on for this issue's cause we were able to squash a longstanding bug that led to some Chapters appearing garbled in QuickTime Player. Not a big deal for iTunes, which was unaffected by the bug in the first place, but good to have it fixed.