Found a solution here in the forum, i.e. change the number of posts in your RSS export file wp-rss2.php.
I have used a figure of 1,000 instead 100 million in that example in forum as I have only few hundred posts. Did that and the xml file is only 602k and inspected the end of the file which showed the first post of my blog.
Another key aspect is that I have to set Option>Reading>Syndication Feeds and update the number of posts you want and check either radio button for full text or summary.
Importing is a problem using WP2.0 Import feature but it captured only about 78 posts? I may have to do this again and find out why.
PS: just repeated this process using another WP2.0 site, it was all 291 posts imported and I found my very first post there! I guess there was something wrong at server side.