get 'open with' popup menu when trying to open a folder

Hello.
I have just reinstalled Windows ME after formatting the
harddrive.
My problem now is that when I go to 'My computer' and
double click on drive C and try to open a folder I get
an "Open With'popup menu. This did not happen before the
reinstall.
When I right click on the folder there are two 'open'
options.
Also I cannot create a new folder on the desktop.

What has happened and how do I correct this.

Thank you for any help.

Dean