You using a Mac or something? 🙂
Slipping one of these between the two lines:
$file=explode("\n",$file); // if you're using Unix
$file=explode("\r\n",$file); // if you're using Windows
$file=explode("\r",$file); // if you're using a Mac
Oh, and print_r($file) too, see if the whole file really is getting read.