Okay i cannot solve this problem for 2 days straight.. This examlpe here: http://www.w3schools.com/ajax/tryit.asp?filename=tryajax_xml2 works just fine on the w3schools site. B
You can't work with local files. The local file system is sandboxed so that, for example, you can't double click an HTML document in an email attachment, open it in your browser and have it upload your private files to the sender's server.
If you want to test Ajax locally, then install a local webserver and test through it.