We've all been there Diana and as you have likely found already, Windows 7 is quite different from XP. I think you're going to have fun!
Tell us more about this favorites file. Did you "Export" it from the old XP system's IE? If so it should have created a .htm file, {eg somename.htm} and saved it somewhere on the XP hard drive. Then you copy that to your external hard drive. Is that what you did?
If so, try copying that file off the external drive to your new Windows 7 hard drive. I would use the Desktop folder as a good temporary location, (drag it from the external drive location onto the Desktop).
Then open IE on this new system and Import that file.
Does that work? if not, where does it fail?
You will like Windows 7, honest! And welcome to the 21st century. Only 12 years late.
Mark

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