Next Page/Previous Page Do Nothing

I recently upgraded my WordPress theme to a custom build of “Freshnews Premium.” Once I started working on the CSS and tweaking it a bit, I tried to perform the basic function “next page” for my next page of posts and found that no matter the number of times I forward or go back, the first page of posts just reload themselves. I noticed that the next and previous pages reference “?paged=” instead of “?p=” I am basically a CSS/HTML tard, so I would appreciate any advice. I really don’t have website functionality without a proper forward and back through the pages.

Here’s the code (I believe):

<?php
	include(TEMPLATEPATH . '/includes/version.php');

	$the_query = new WP_Query('cat=-'. $ex_feat . ',-' . $ex_vid . ',-' . $ex_aside . '&showposts=' . $showposts . '&orderby=post_date&order=desc');
	$wp_query->in_the_loop = true; // Need this for tags to work
	while ($the_query->have_posts()) : $the_query->the_post(); $do_not_duplicate = $post->ID;
?>

    	<div class="box">

        <h2><a title="Permanent Link to <?php the_title(); ?>" href="<?php the_permalink() ?>" rel="bookmark"><?php the_title(); ?></a></h2>

        <div class="date-comments">
            <p class="fl"><?php the_time('D, M j, Y'); ?></p>
            <p><span class="fr comments"><?php comments_popup_link('0 Comments', '1 Comment', '% Comments'); ?></span></p>
        </div>        

        <?php if ( get_post_meta($post->ID,'image', true) ) { ?> <!-- DISPLAYS THE IMAGE URL SPECIFIED IN THE CUSTOM FIELD -->

            <a title="Permanent Link to <?php the_title(); ?>" href="<?php the_permalink() ?>"><img src="<?php echo bloginfo('template_url'); ?>/thumb.php?src=<?php echo get_post_meta($post->ID, "image", $single = true); ?>&h=125&w=125&zc=1&q=90" alt="<?php the_title(); ?>" class="fl" style="margin-top:5px;" /></a>          	

        <?php } ?> 

        <div class="entry">
        		<?php the_content(); ?>
        </div>

        <span class="continue"><a title="Permanent Link to <?php the_title(); ?>" href="<?php the_permalink() ?>">Continue reading...</a></span>    				

    	</div>

	<?php endwhile; ?>
<div class="navigation"><p><?php posts_nav_link(); ?></p></div>
<ul>
  <li><?php previous_post_link('&laquo; %link') ?></li>
  <li><?php next_post_link('%link &raquo;') ?></li>
</ul>

Thank you for taking a look at my problem.

PS- The site is NSFW.