Listen carefully, this may get confusing....
To prevent users from installing programs, you must set the permissions on the directory that they are installing from to not execute. However, with downloading from the web, they could put it anywhere. Heres what to do: First, get rid of netscape if its on there, and install IE5....trust me, this is a LOT simpler with IE. Next go to tools, internet options, advanced. Find the box that says clear temp files on browser close. Next you'll want to install tweakui. Make the user an administrator temporarily, and hide the drives. Then make the user a standard user. Next, you must find the desktop folder in their profile (c:\winnt\profiles\user\desktop\ and set the NTFS permissions to read, execute, but NO write. Then under the same profile, find the temporary internet directory and set the permissions to read write, but NO execute.
Now when they download, they will only see the desktop as a place to save, but if you set NTFS right, they wont be able to. For executable install programs, they can still "run from" the internet, which downloads it to that temp dir, then executes. If you set the temp Inet dir to write, but not execute, they will get an error after the file downloads, then tries to run. Then when they close the browser, the temp file will be deleted.
There are MANY MANY hacks for locking NT, and it CAN be done, very well. There is a whole hive of registry hacks you can do to get rid of right click access in both NT and IE, get rid of portions of the start menu (run, find), get rid of access to IE options, not allow changing of the desktop (icon positions, wallpaper), getting rid of common save dialog boxes, get rid of lock computer, task manager and change password buttons....On and on.
When i used to work at a university library, when i was done with a machine, there would be 2 icons--one for IE so they can do research on the web (but no downloading and installing programs!!) and one for a program to access the online card catalog system..NOTHING else...no my computer (nothing for them there anyway), no recycle, nothing.
Theres a lot of work that can be put into it, but realize that it can be done, and its very satisfying to see. Good luck.