Ah, don't you love answers that just say, "You're doing it wrong"?
Yes, there is a file size limit. It says so right there on the "Import" screen. Try to upload your posts, anyway, and you'll end up getting an error message, or, timing out, or worse.
As DrMike says, you need to break up the file into pieces.
1) Export your file, this will create one mega-file.
>> Manage >> Export
2) Open the file with Notepad.
3) Highlight a bunch of posts.
4) Copy those posts into a new Notepad file, and save as .rss file. (Make sure you don't save it as a ".rss.txt" file by accident.
You'll have to guess as to how many posts to put into each smaller file. I found it better to err on the side of caution. I had an 11.4mb file, but I ended up with over 20 smaller files, but I had no idea how big each file was. Overkill? A bit, but I didn't want to have to keep recreating the files, over and over again.
5) The important part you'll need in each of the smaller files is the "header" and "footer" of the original file, for lack of a better term. As MrMike said, each entry begins with <item> and ends with </item>.
In the "master" .rss file, you'll see a bunch of entries at the beginning. Copy all of this and put it into each of your smaller files. Copy all the way from the first <xml> tag all the way until right before the first <item> tag.
(This information seems to be necessary in each of the smaller files, even though it may seem redundant. This information includes categories, etc., so you'd think that after your first upload, you wouldn't need to include it in subsequent uploads. I guess you do, because I didn't, first time, and ended up with blank categories on all my posts. If this confuses you, just ignore it. All you need to remember is to make sure each smaller file has the beginning part and ending part of the original file.)
After the end of the last </item> you'll see two more tags - </channel> and </rss>. You'll need to enter this at the tail end of each of your smaller files.
Save each file, again, making sure it ends in .rss.
6) Go to your new blog.
>> Manage >> Import >> WordPress
7) Browse to the first of your smaller files (ah, now you realize, you need to label them in such a way as to remember which ones you've uploaded and which ones you haven't ...)
8) If the new file is small enough, WordPress will prompt you to set up new "authors". If it's too big, you'll get some sort of error message. I suggest going to your Manage Posts page to make sure none of the files have uploaded, but you can always do that later.
(There seems to be a control to keep you from uploading the same entries more than once; this is good.)
9) WordPress will upload the files and tell you they are all set, by showing the words "Importing ..." with the name of each blog entry.
Voila! You can go on to the next file.