Got the bike out for the first ride of the season and noticed that the dust seal that covers the upper set of bearings in the headset was cracked and had come partially out of place. Is this important, do I need to replace it, and where do I find the part? 2007 Specialized FSR-XC is the bike.

'course, with dust seal is better than without. But you don't really need it until you ride in dirty conditions.
I scraped by quite awhile by cutting a wide rubber band out of a discarded tube and fitting it over the top headset bearing.
Don't really know where to get a spare.
A completely new headset might be the easiest option.
Unless you manage to find a relentless tinkerer which might have saved the top half of an otherwise busted headset.

Does the headset have a maker's name and model number on it, say FSA, Cane Creek, etc. Contact the manufacturer and see if they have replacement parts.