http://codex.wordpress.org/FAQ_Working_with_WordPress#How_do_I_Import_a_WordPress_WXR_file_when_it_says_it_is_too_large_to_import.3FI didnt see you reference the memory limit, as shown in the above link. It says:
1. Increase the memory limit setting in php.ini (e.g. memory_limit = 64M ;). Many hosts may not allow this.
2. Increase the memory limit via .htaccess (e.g. php_value memory_limit 64M). Many hosts may not allow this.
3. Increase the memory limit via wp-config.php (e.g. define('WP_MEMORY_LIMIT', '64MB');)