You cannot create a new document, Open document, or check out an existing document in a Windows SharePoint Services 3.0 document library when you have multiple versions of Office installed
The problem happens when you have, or had, two versions of office installed. You have to go into your program files directory and delete the version of owssupp.dll you're not using (for example if you upgraded to office 2007 and then downgraded back to office 2003 you delete owssupp.dll in the office12 directory). IE 7's manage addons you can see two versions of the owssupp dll registered so IE gets confused and you have to forcefully remove the version you're not using anymore.
To resolve this problem, install hotfix 938888. For more information about hotfix 938888, click the following article number to view the article in the Microsoft Knowledge Base:
938888 (http://support.microsoft.com/kb/938888/ )