I did some additional reading and apparently you can really only accomplish this task this way
Export the backup PST file (like you did)
Open up Outlook Express (In WINDOWS XP!!!!



) and import it there...
Copy the emails over to WLM
If you haven't gathered...this will need Virtual XP Mode (if you only have Windows 7 installed). Apparently the Office department hasn't posted any way but this to accomplish the task. It is sad really...