Someone on the Microsoft/TehcnologyQuestions forum have provided me with the answer:

http://www.technologyquestions.com/technology/internet-explorer/168274-open-home-page-start-without-add-ons.html

http://www.microsoft.com/communities/newsgroups/en-us/default.aspx?dg=microsoft.public.internetexplorer.general&mid=e49d1c13-acee-41d0-9088-806d3096cb9c&sloc=en-us

Issue Description:
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Double click IE icon on the Desktop. It won't open IE page but creates a shortcut to IE.

Cause:
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LegacyDisable subkey under the following two keys:

[HKEY_CLASSES_ROOT\CLSID\{871C5380-42A0-1069-A2EA-08002B30309D}\Shellex]
[HKEY_CLASSES_ROOT\Computer_User_Name\{871C5380-42A0-1069-A2EA-08002B30309D}\shell\OpenHome

Resolution:
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Delete the LegacyDisable subkey

How to back up, edit, and restore the registry in Windows XP and Windows Server 2003
http://support.microsoft.com/kb/322756

Searching for "LegacyDisable" also reveals several other commands lockedout from extensions such as AVI and MIDI, so I just scanned the registry for this and deleted them all (even though some commands were empty, but oh well).

Thanks for reading my post anyway, I copied the soltuion here to help other people with it if they have the problem too.

All the best,

Robert