|I'm not sure what solution you are looking for, so I'll toss this out...|
.xls files are used in 2003 and earlier versions of Excel
.xlsx files are used in 2007.
I think what you are being asked is this:
"You have asked 2007 to open an .xls file, which may not have all of the features that a .xlsx file could have. Do you want to retain the .xls file format or would you like 2007 to convert it to .xlsx?"