The same exact thing happened to me with links not working in IE. It happened sometime after I installed Netscape 6.2 and also Studio 7, but god knows what else I did in the meantime as well. (ie: windows updates, etc)
I blamed Netscape 6.2 and uninstalled it, with no luck. (Before I uninstalled NS6.2, I tried making it the default, but even though the "check for default browser" option was checked, IE never complained.) Then I tried the reset web settings button, hit that, while also making sure the "check for default" was still checked, and suddenly I was able to get links to work again. Then I reinstalled NS6.2 and I was still OK, so who knows what caused it to break.