I am having the same issue... I am running Vista x64 with sp2 and IE 8.
The problem is that some multimedia file types such as .wmv, .avi and likely others will not launch when clicked-on. However, if you attempt to save the content you can execute it locally from disk.
I am under the impression that this is a result of the recent MS updates that may have come with the Windows Live pack. I recently upgraded from IE 7 to 8 hoping that the problem would be resolved, but it hasnt. I have tried resetting all the settings with-in IE and have had no luck. I have even attempted adding a site to the approved zone, then dropping the security level to nothing.
There must be some combination of security and privacy level settings that you have to do to make it work.
Keep in mind that some file extensions do work, I think that .mpg works. Also, this problem has nothing to do with Flash or Java.
Lastly, the multimedia works fine in Firefox -- its strictly IE thats having the problem.
If anyone figures out the solution, please let us know.
Thanks! --bryan