I am having a heck of a problem with IE when I go to download a file the option to open a file if it is a zip file is grayed out. What could have caused this and how might it be fixed.

hmm...
I just did a test and noticed mine is also greyed out. Of course, I haven't noticed because I use an awesome download managerawesome download manager which is a getright clone. It let's you not only open them after transfer, but also has the option to look at the file listing inside ZIP's BEFORE you download them.

But enough of the advertising :p

Maybe it's something to do with file-types and associations (advanced side of it in registy, not folder options)
Or in one of the internet explorer file-type registry entries.

Also another possibility - I have removed XP's shell support for ZIP files. (Unregisterd the .dlls) Have you also done this?

Maybe it is just never there to begin with..Anyone with a fresh install?