The Extended Theory of Finite Fermi Systems is based on the conventional Landau-Migdal theory and includes the coupling to the low-lying phonons in a consistent way. The phonons give rise to a fragmentation of the single-particle strength and to a compression of the single-particle spectrum. Both effects are crucial for a quantitative understanding of nuclear structure properties. We demonstrate the effects on the electric dipole states in 208Pb (which possesses 50% more neutrons then protons) where we calculated the low-lying noncollective spectrum as well as the high-lying collective resonances. Below 8 MeV, where one expects the so-called isovector pygmy resonances, we also find a strong admixture of isoscalar strength that comes from the coupling to the high-lying isoscalar electric dipole resonance, which we obtain at about 22 MeV. The transition density of this resonance is very similar to the breathing mode, which we also calculated. We shall show that the extended theory is the correct approach for se