I had the same exact problem a while back and found that it was the IE plugin that was keeping me from launching IE. Here is the link to the fix that I used. »
I tried it and there arent the files that it says should be in the registry and when I try to run those commands in dos it fails. I will keep on searching but maybe you guys can help me out.
Contrary to popular belief installing the IE6 over 5.5 does not get rid of my problem. The same things happen. IE won't start with a double click and the IEPlugin is not gone.