A recent IRS notice seems to permit beneficiaries of inherited retirement plans and IRA’s to convett those inherited accounts to a Roth IRA.  Notice 2008-30 provides guidance about the distribution provisions of the Pension Protection ACt of 2006.  Prior to this Notice, only spousal beneficiaries had this option, via the spousal IRA rollover privilege.  Non-spouses did not have this option.  "If you inherited a traditional IRA from someone other than your spouse, you cannot convert it to a Roth IRA." IRS Publication 590 (2007). 

Before the PPA, a Roth IRA could only accept a rollover contribution of amounts
distributed from another Roth IRA, from a traditional or SIMPLE IRA or from a designated Roth
account. Those wanting to do a rollover from a qualified plan had to first roll the
assets from the qualified plan to a traditional IRA, and then do a rollover from the traditional IRA
to the Roth IRA. Under the PPA, beginning in 2008, the law allows taxpayers to rollover assets directly from a qualified plan to a Roth IRA without having to first go through a traditional IRA.

The law made no mention of expanding the rollover opportunity to non-spousal beneficiaries, however, Notice 2008-30, Question 7, specifically acknowledges that this conversion right is held by non-spouses as well:
Q-7. Can beneficiaries make qualified rollover contributions to Roth IRAs?
A-7. Yes. In the case of a distribution from an eligible retirement plan [which includes an
IRA and 403(a) annuity, a 403(b) annuity, a qualified trust and a deferred compensation
plan under 457(b)] other than a Roth IRA, the MAGI and filing status of the beneficiary
are used to determine eligibility to make a qualified rollover contribution to a Roth IRA.
Pursuant to § 402(c)(11), a plan may but is not required to permit rollovers by nonspouse
beneficiaries and a rollover by a nonspouse beneficiary must be made by a direct trusteeto-
trustee transfer. A nonspouse beneficiary that is ineligible to make a qualified rollover
contribution to a Roth IRA may recharacterize the contribution pursuant to § 408A(d)(6).
A surviving spouse who makes a rollover to a Roth IRA may elect either to treat the Roth
IRA as his or her own or to establish the Roth IRA in the name of the decedent with the
surviving spouse as the beneficiary. (See Notice 2007-7, Q&A-13, for a rule on how to
title a beneficiary IRA.) A nonspouse beneficiary cannot elect to treat the Roth IRA as his
or her own. (See Notice 2007-7, Part V.)
In the case of a rollover where the beneficiary does not treat the Roth IRA as his or her
own, required minimum distributions from the Roth IRA are determined in accordance
with Notice 2007-7, Q&As -17, -18 and -19.

This position provides amazing planning opportunities for beneficiaries.