This is my first post, and it's taken me over an hour of searching the internet to finally find the solution to the problem! (I was searching MSDN, Google etc. for 'Office File association', 'Windows file associations not working' and so on...). It was only when I typed in 'xls_auto_file' that the results brought me here, as the last thing I expected was that it is Parallels causing the problem, not Windows.
At any rate - post #61 by 'Gary' completely solves the problem.
Initially I thought that it was limited to just Office file associations, but Gary's post highlighted to me that others (e.g. .pdf files) are also affected. Essentially it seems to be all file types that may have a Mac equivalent. In my case, Excel, Word, Powerpoint, Acrobat docs were affected. However Microsoft Access, Publisher, OneNote files all were ok (I guess because there is no Mac equivalent application). Parallels must overwrite the associations to be helpful but it seems to mess things up in the process.
I would like to add a few points though to help future users:
If trying to fix Office 2007 file associations as per post #61 I suggest amending all of the following additional registry entries.
.docx from 'xxx_auto_file' to 'Word.Document.12'
.dotx from 'xxx_auto_file' to 'Word.Template.12'
.xlsx from 'xxx_auto_file' to 'Excel.Sheet.12'
.xltx from 'xxx_auto_file' to 'Excel.Template'
.pptx from 'xxx_auto_file to 'PowerPoint.Show.12'
That covers both the main document formats, plus their templates.
In addition, I've also noticed that things like .doc, .dot, .xls, .xlt and others have also been overwritten to the _auto_file setting.
Finally I also noticed that if you create another user account in Windows (I'm using XP Professional SP2) then all of the file associations work correctly!!! It only seems to be the Administrator account that Parallels creates that seems to be broken.
Also, knowing this means that if you find a file association not working and you don't know what the correct entry should be, create another User Account in Windows, then fast switch to it, check it's registry entry, then use that to fix the entry under the broken account.
Apologies for a long (but hopefully useful) first post!!