I followed these directions:
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In order to be able to enable and display labels for features, the labels must first be enabled for the shapefile in ArcMap. Once the labels are displayed as desired, save the layer to a Layer File and then open that .lyr file in ArcGIS Explorer.
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After adding the layer to Explorer I get an error message that states: Failed to Add Layer Packages: C:\......(Invalid FIie).
The file can be added back to my mxd and it appears correctly with the proper labels so I don't know why it won't work in Explorer.