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But what IS a file association other than a couple of lines in the Windows Registry?

For the most part, yes, that's all it is.

Sometimes those lines in the windows registry will point to something called a "handler", which is an entry point in a DLL, that runs actual code when that file extension is encountered.

When you had a problem getting the SCF to work *AND* getting the REG to work, I thought that maybe a whole bunch of file associations had gotten messed up. But perhaps that's not it at all; like you said, the registry entry looks correct to you.

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Could the problem lie within IE?

Very well could be!
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Tony Fabris