Windows 7: I have the Browse folders option set to "Open each folder in the same window" in the Folder Options dialog. Double-clicking folders opens a new window. Please, make it stop.
I had the same problem. Re-registering two dll's and rebooting solved it:
regsvr32 "%SystemRoot%\System32\actxprxy.dll" regsvr32 "%ProgramFiles%\Internet Explorer\ieproxy.dll"
I'm having the same problem on the machine I'm at, but it doesn't happen on other machines I've used in the past. You inspired me to try something just now
In folder options, choose file types. find the "(NONE) Folder" item and click on Advanced set the default action to open (was yours set to explore like mine?). That didn't work, but I did notice it's opening up in new window when the folders pane is visible, and otherwise in its own window - does that match your behaviour?