When you import the Internet Explorer 8 Beta 2 bookmarks file to a system running Internet Explorer 7 or earlier, the following error occurs when you click Finish in the Import/Export Wizard.

I could fully reproduce the problem in my Windows XP SP3 system running Internet Explorer 7. The source computer runs Windows Vista with Internet Explorer 8 Beta 2 installed. Thinking that this could be due to incorrect formatting or missing tags in the HTML file, I opened the file using Notepad but couldn’t find any errors in it. Eventually I spotted that this issue is caused by incorrect encoding used by Internet Explorer 8 Beta 2 to create/write to bookmark.htm. With that said, the fix is very simple.
To resolve the problem, save the bookmarks file as ANSI text. To do so, use the following steps:
Start Notepad, and then open the bookmarks file (bookmark.htm)

Click Save As on the File menu.
In the Save As dialog box, click ANSI in the Encoding list, and then click Save.

Click Yes when prompted to overwrite the file.
You should be able to import the bookmark file successfully using the Import/Export Wizard in Internet Explorer.
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Thanks so much for this info. I was starting to make myself crazy.
Gotta say, YOU ROCK!! Thank you for this! Ive been looking for this fix for a good 6 hours! Thanks again, VERY COOL!
Thanks for the tip. I have a laptop with XP & IE8 on it and was issued a company laptop with Vista & IE7. I needed to copy my bookmarks on the vista machine and this solution worked like a charm.
Believe it or not, what seems to be happening is that the e-mail system is altering the file when I attach it to a message. What I’ve been trying to do is transport my favorites from home, where I’m running IE8 under Vista, to my office computer, which is running IE7 under XP. I figured the easiest way to do it was to attach the favorites file to an e-mail sent to my office address. But when I open the attachment, it doesn’t have the same heading lines as the original.
Very strange. I’ll try saving to a CD and carrying it into the office.
My IE8 is running under Vista, and the IE7 is running under Windows XP. I have tried this reformatting to ANSI step on both computers, and the results are exactly the same: I always continue to get the “Not a valid bookmark file” message when trying to import to the IE7 under Windows XP.
Awesome! Thanks for the quick and easy fix!
This works also when unsuccessfully trying to import a bookmark.htm file INTO IE-8 from IE-7. Very cool. Thank you!
Wow…! It works, and you saved me the frustration.
Thanks, worked for me too, had the same problem!
It worked. You are the best. Thank you.