Problem
The "Open with Windows Explorer" option on a document library does not open Windows Explorer.
Solution
One of the really cool features on a SharePoint document library is the ability to open the library with Windows Explorer. This allows users to easily drag and drop files from a network share or local drive straight into SharePoint.
This shows the "Open with Windows Explorer" menu option on a Document Library.
Here is the Windows Explorer window accessing a SharePoint Document Library.
However, if you are using Internet Explorer 8 (64 bit), clicking the link from the Actions menu simply appears to do nothing. The solution unfortunately is to use a 32 bit machine until Microsoft adds support and an upgrade for Internet Explorer (64 bit) to a Level 1 supported browser.
UPDATE : Microsoft has addressed this issue with the latest Internet Explorer Cumulative Security Update. LB97445 http://support.microsoft.com/kb/974455 Also note this article from www.ie8blog.com which refers to the same issue.
In SharePoint 2010 you do get a warning message stating your browser does not support this command which is a small step forward.
SharePoint 2010 warning message
A list of supported functionality across the top browsers for SharePoint 2010 can be found here: http://technet.microsoft.com/en-us/library/cc288142.aspx
For those of you new to SharePoint 2010 the "Open with Windows Explorer" option has moved to a small icon in the ribbon.
SharePoint 2010 - New Open with Explorer icon
Version Information
This issue has been recreated against the following environment:
Environment 1
Server: Windows Server 2008 R2 - x64
Client: Windows 7 - x64, Internet Explorer 8
SharePoint: Microsoft SharePoint Server 2010, Mcirosoft Office SharePoint Server 2007 SP2, Windows SharePoint Services 3.0 SP2
Next Steps
Read these Microsoft Knowledge Base Articles, KB972584 , KB974455 (Fix for issue)