From a WebCT Student FAQ:
Prevent Internet Explorer from opening
Office files inside browser windows

Note: This tip for PC users applies
only to Internet Explorer, running under Microsoft Windows 2000 or XP.

Are you tired of Internet Explorer’s
insistence in opening Microsoft Office files (Word, Excel or Powerpoint)
in a captive window within the browser? If you would rather have IE open
Excel or Word documents in the native applications (and even give you a
choice to save it to disk), here’s how you can do it…

  1. First open any folder (My Documents
    or a regular file folder) and click the “Tools” menu item, then select
    Folder Options....

    My Documents window showing "Folder Options" location

     

  2. On the resulting dialog box, click
    the “File Types” tab (it may take a bit of time to build the list),
    then scroll in the “Registered file types:” window until you find the
    appropriate extension(s) for the files whose behavior you want to
    change (DOC for Word files, XLS for Excel files, or PPT for PowerPoint
    files) and highlight (i.e., click) it.

    "File Types" tab of the Folder Options settings window

     

  3. Click on the
    Advanced
    button to get to the settings for this file type (in the Edit File
    Type dialog).

    "Edit File Type" dialog for setting how files open in Windows

     

  4. UNCHECK
    the “Browse in same window” option, and, if you want to have the
    browser ask whether to save or to open the file each time you
    encounter one, check the “Confirm open after download” box.

You’re done! Now, whenever you click a
link to a file having the extension you just changed, Windows will ask
you whether to save the file to disk or to open it… and if you choose
open, it will do so in the native application for the file, rather than
in an embedded (and limited capability) browser window.