Open explorer -> Tools -> Folder Options -> File Types
Find the .XLS extension and click Advanced
Select the Open bold option and -> Edit
In the box under "Application used..." go to the end and add the "%1" after the /e (inlcude the quotes)
Ok->Ok->Close
If you use the above solution you must remove the "DDE Message" that also has the [%1] command. Keep the "DDE" box checked and things should work. I have been having nothing but problems with Excel 2007. I can't open an Excel 2007 file from a link either. Firefox helped a few times but now it is acting up as well. If my solution fails I apologize but it is currently working for me. Wait till tomorrow when I re-start the computer, then I'll know for sure!
This may need to be done for other Excel file extensions as well.
Once I did both of these steps, it worked. Before removing the DDE Message, it opened teh excel file but also told me it couldn't find the file. Thanks for the help