Problem was solved. I'm posting the solution here in case someone else needs it. It required a registry change as follows (courtesy Jim Morison). (I tested it too and it works).
In Windows 7, double clicking on an image file that should open in PSP 9 will open the program with an error message but without the image on most machines.
PSP 9 uses an old Windows system called DDE to pass the image to the
program. DDE is still part of Windows 7, but is prevented from working by 7's tighter security.
One solution, though perhaps a risky one, is to disable UAC.
The other solution was posted by "bpark37" on the PSPUG forums
(PSPUG Message Board - PSPUG Message Board
"NEW SOLUTION! Tested on 2 PC's.
I have successfully applied this fix using Paint Shop Pro 9 (PSP 9) with Windows 7 (Windows 7) x64 on 2 different PCs.
(1) Open Regedit
(2) Go to the following string: HKEY_CLASSES_ROOT\Applications\Paint
Shop Pro 9.exe\shell\open\command
(3) Change the "Default" entry to
"C:\Program Files (x86)\Jasc Software Inc\Paint Shop Pro 9\Paint Shop
Pro 9.exe" "%1"
(4) Delete the following string (which is immediately below the string you just edited):
HKEY_CLASSES_ROOT\Applications\Paint Shop Pro 9.exe\shell\open\ddexec
(5) Exit Regedit
(6) Open a picture file as you typically would from windows explorer and it should open without error."
I've tested this on both 32 bit and 64 bit versions of Windows 7 and it