"Access is denied" when clicking folders

I'm using XP MCE 2005 SP2. Whenever I click on any folder in my C (NTFS) and
D (FAT32) partitions, I get "Access is denied." Files are not affected. I can
delete, rename, move, and copy folders, and even open them by
right-clicking. I can browse through folders in Explorer, I just can't click
on them directly. This started happening either after installing the
December 9th patches or the Windows Defender definition update from around
that same time.

Permissions and ownership are normal. The owner is the Administrators group,
and my account has full control. PC is clean of any viruses or spyware. A
System Restore to a couple days before this started happening does nothing. I
thought my profile might be corrupt, so I made a new account and it has the
same problem. I have never changed any Group Policy Settings, they are all
default.

Running Process Monitor and clicking on a folder produces this:
Explorer.EXE 1852 RegOpenKey
HKCU\Software\Microsoft\Windows\CurrentVersion\Pol icies\System NAME NOT
FOUND Desired Access: Query Value

Sure enough, this key doesn't exist. Could this be the problem?