Star One, "Slip Slidin' Away": This is one of the easiest stars in the game. All you have to do is go into the chimney of the small cottage at the beginning of the level. There is now a huge slide. Get to the bottom, go out the door, and a star will be awaiting you!
Star Two, "Li'l Penguin Lost": Pick up the baby penguin at the beginning of the level. He is standing on the platform above the little cottage. Now, travel down the mountain until you get all the way to the bottom. There is a mother penguin in a little pond. Give her the baby, she gives you a star!
Star Three, "Big Penguin Race": If you liked "Slip Slidin' Away", then you'll love this star. Go back to the slide, only now there's a penguin awaiting you. Simply beat him in a race to win the star. (You cannot use the shortcut.)
Star Four, "Frosty Slide for Eight Red Coins": As usual, you must collect eight red coins. There aren't any that are too difficult to find. You should be able to do this one yourself, after all, you're a Mario 64 master by now!
Star Five, "Snow Man's Lost his Head": Near the start of the level, there is a platform with huge snowball on it. Go over to it, and make it roll down the hill. Be sure to get to the bottom first, and be waiting by the snowman's body. When the ball comes down, the head will attach to the body, and you will get a star.
Star Six, "Wall Kicks Will Work": Boy, is this star annoying! It doesn't belong on the third level of the game. To get it, go into the cannon that is near the mother penguin. Shoot yourself onto the distant island with a tree on it. From here, navigate over to the right, where you'll find various ledges. Use wall kicks to get to the top, where a star awaits.
Star Seven: Collect 100 Coins. Good Luck. It's nearly impossable. It took me a few weeks to find all of them.