IE8 won't save downloads

Sony laptop VGN-AR730E running Windows Vista Home Premium SP1 32-bit.
Developed a problem where when trying to save attachments from webmail
using IE8, the download dialog box opens, but whether I choose to save
or open, once it gets to the end of it, it either doesn’t open or
doesn’t save. Protected mode is on. Turning protected mode off doesn’t
make a difference. Running IE8 as an administrator does work as a
workaround, but it’s not practical and want to resolve issue without
having to resort to that workaround. Turning UAC off didn't make a
difference either. Upgraded machine to Windows 7 Home Premium and it
didn’t make a difference. Firefox is also installed in the machine and
does not suffer from that problem. The owner of the laptop stated that
machine used to have Norton 360 and when the subscription expired the
IE8 bug started. This is an unverified claim. Machine also used to have
McAfee installed. Norton and McAfee removal tools have been run in the
machine. IE8 reset has been performed as well.

I'm stumped at this point and will appreciate any help.