Well, I called ESRI last week about this issue and it took some time, but we finally got it to work. Here is how:
Go to start menu, click on default programs, click "set program access and computer defaults." You will see three options; Microsoft Windows, Non-Microsoft, and Custom." Choose Microsoft Windows. That resets all your internet settings and browsers to default IE and now you can use ArcMap tools again.
On a side note, I have to say how worried I am that ArcMap 10 is being tied into the most buggy, virus-ridden internet software on the market today. I much rather prefer a stand alone program than any that would is dependent on a program that hackers eat for breakfast.