It looks like you gave up on using the MT import method, and I can't even get WP running to test anything to help with the rest, BUT... if you do feel like trying the MT import method again, here's an example of an MT 2.6 export file. Note that nothing is escaped - quotes in the HTML tags are just fine.
TITLE: Ohwha Tador Kiam
ALLOW COMMENTS: 2
CONVERT BREAKS: 0
ALLOW PINGS: 0
DATE: 10/05/2002 03:10:03 PM
<strong><acronym title="Law School Admissions Test">LSAT</acronym></strong>: done. Please don’t ask me how I did. I don’t get the score for weeks, and right now I’d like to focus on killing my brain cells with beer. I will admit, though, that I closed my writing sample with: <i>Ceterum censeo Carthaginem esse delendam</i>. I am an überdork.
My friend from work gets married tonight within stumbling distance of my apartment. Guess who’s going to enjoy himself at the reception tonight?
Me, in case that wasn’t clear.
NP: The Autumns, <i>Rose Catcher</i>
DATE: 10/07/2002 06:58:26 PM
So...How did you do?
AUTHOR: Michael Hoke
DATE: 10/08/2002 08:58:34 AM
I assume that’s what you were asking about, because if you were asking about something else, say, oh, the <strong><acronym>LSAT</acronym></strong>, I’d have to beat you. Severely.
The newline character ('\n') does NOT have to be typed - you just need to have a new line begin after the dashes (I don't know if saving the file in Windows will mess it up - if you can use TextPad or another editor that will allow you to save the export file with Unix-style newlines, that might be safer, but I don't know, as I can't get WP up to test). Also, I have no idea whether the import script in WP requires the elements to be in a certain order, but MT spit them out as above. Hope this helps.
And yeah, this forum needs a post preview.