I've run into the same problem. After I upgraded from IE4 to IE5(128bit) I lost the ability to view my local folders as web pages. I even went into IE5 on the file menu; selected open; checked view as web page; then attempted to open a local folder. I was notified that this was not possible, then I was given the traditional explorer view of the directory.
Let me know if there is a real answer.
Terry Rooks
Software Systems Architect
Microsoft Certified Solution Developer.Net
If at first you don't succeed, then skydiving definitely isn't for you.