To change the above in XP/2000
Go to control panel and double click on folder options
Click file types tab
Find the "Microsoft Word Document" file type. Also you might like to do the same for word templates, excel files etc.
Click the advanced button when you have selected your file type
Tick the confirm open after download box
If you are finished then click close. If you want to do more then repeat the above find file type etc.
Note that if you reinstall Office or apply any service packs or patches this option will be reset and it will open in IE again when you click on it. Typical Microsoft software