What does "fails" mean?
In 9.3 metadata was "hard wired" to a metadata format (ISO, FGDC, etc). In 10.x metadata is stored using Esri's ArcGIS schema. So when you import you need to tell ArcGIS which format the XML came from.
1. Set the metadata style to the metadata style used in 9.3 (ArcMap Customize/Options/Metadata tab, "FGDC CSDGM" or "ISO blah blah blah, blah blah")
2. Right click the dataset in the ArcMap Catalog window, choose Item Description
3. Click the Import button, navigate to the XML file
Another approach is to use Metadata Importer (which just slaps it in there without validation) and then run the Upgrade Metadata tool.
