Run this script, see what output you get: <? phpinfo() ?>
Also, try this: start->run->regedit
HKEY_CLASSES_ROOT->.php,.php4,.php3 (whichever you have, it's not all listed as one)
Erase that entry, and then try using the "Open With..." again.
To erase it, right click on the FOLDER and go to "Delete."
Most likely, it says something like "PictureIt.File", and for some reason is stuck on that.