Posted by Anonymous on Wednesday, July 15, 2009 at 11:22pm.
I believe it acts as an adjective describing the word "time." If the structure of the sentence is changed to:
Long ago, there lived a princess.
I think then it would be an adverb describing "lived."
I would wait for further confirmation on that from someone else, but that's my initial thought.
"a long time ago" is an adverb phrase telling when.
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