First, try setting IE5 as your default browser. Go to IE tools/internet options/programs and turn on the check box for IE to check if it is the default browser. Shut down and restart IE. When it asks to be default browser, say yes.
Also have a look at this MS article:
Internet Shortcuts in Outlook Express Don't Start Browser
Also, some third party programmes that control pop up windows and advertisements can prevent this facility from working. Disable all third party internet related programmes and test.
If no joy, try repairing IE, if you have that option available:
Description of the Internet Explorer Repair Tool
If you don't, do this:
Go to Start - Run (type each line below separately, then press OK)
regsvr32 Shdocvw.dll
regsvr32 Oleaut32.dll
regsvr32 Actxprxy.dll
regsvr32 Mshtml.dll
regsvr32 Urlmon.dll
Note: you should see a brief message after each entry.
Reboot and test IE - New Window, repost with your results.
Some (and this refers to Windows 98 only) have reported that after this fix they still had to revert back to an older oleaut32.dll version from their CD.
So that's worth trying as well.
Good luck,