Here is the setup:
Clean install of Windows 7
Office 2007
IE8

Every time I click on an excel document in Sharepoint, or any hyperlink
which points to an Excel file, it opens in IE8 instead of Excel. I have
confirmed that the file extension defaults for the .xls and .xlsx point to
Excel, not IE8. I have also looked in the registry and there are no
"BrowserFlags" reg keys under the HLM/Classes branch. I even tried adding the
"9" reg-dword "BrowserFlags" to the "Excel.Sheet.8" registry sub-key but it
had no effect (this was from an older KB article which did not specify Win7
or IE8.

I am confused as the default behavior should be for office documents to open
in their native app, not IE.

Any ideas?