Mordred, you seem to be a little confused about several issues here, you might want to read up a little on Special Relativity. I would suggest Wikipedia's introduction to the subject.

http://en.wikipedia.org/wiki/Introducti ... relativity
I personally think that explaining E = mc^2 as a conversion between mass and energy isn't really the best way to think about it. It's actually an equivalence between the two - in other words, where there is mass there is energy, and where there is energy there is mass. You can think of mass and energy as being two different aspects of the same thing.

It can be a little confusing because it's easy to confuse apparent mass with rest mass. Remember that Special Relativity says that the apparent mass of an object will change depending on how fast that object is traveling relative to the observer - the faster an object is traveling the more apparent mass it will have, according to this formula:

Apparent mass = rest mass / sqrt ( 1 - v^2/c^2)

As the velocity of the object approaches c, the denominator approaches zero, which means the apparent mass approaches infinity. This is why it's impossible to accelerate an object with a rest mass to the speed of light. It gets a little weird when dealing with "massless" particles such as a photon. Since such particles always move at c, the formula becomes Apparent mass = 0/0. 0/0 is undefined, because it can equal any value. This is why your old math teacher told you never to divide by zero, strange things happen.

So the end result is that particles like photons must always move at c, and have no rest mass, and yet they *do* have an apparent mass, and therefore also have energy and momentum.

What E = mc^2 is really saying is that any time you do anything to increase the energy of something in any way, you will also increase its apparent mass. So a compressed spring will have ever so slightly more mass then a relaxed spring; a hot object will have ever so slightly more mass then a cold object. When you're talking about a process that "converts" mass to energy, such as a nuclear reaction, what happens is that the apparent mass stays the same, but since the reaction releases a lot of photons, which have apparent but not rest mass, the total rest mass of the products of the reaction are less then the rest mass of the reactants.