JSI Tip 0909. IE Active Desktop may remove the Explorer New Menu options.

In tip 382, I scripted a workaround. Here is a registry hack:

Use Regedt32 to browse to HKEY_CLASSES_ROOTDirectoryBackgroundshellexContextMenuHandlersNew

If the path is not there, Add Keys. Select the New sub-key and Add Value, a type REG_SZ entry, without any name. Set the string value to {D969A300-E7FF-11d0-A93B-00A0C90F2719}. In the right hand pane, this will appears as:

           : REG_SZ : {D969A300-E7FF-11d0-A93B-00A0C90F2719}

You may add this entry, even if you don't have the Desktop Update installed. It can't hurt and may help your problem.