I have fixed this issue by doing the following
Since Microsoft has no way available of reinstalling Windows Defender, the solution I found was this:
- From a working Windows 7 machine, Zip up the "Windows Defender" folder from "C:\Program Files\" to be "Windows-Defender.zip"
- Also Zip up the "Windows Defender" folder from "C:\Program Files (x86)\" to be "Windows-Defender-x86.zip" (if using 64-bit windows)
- On the broken Windows 7 machine, open Windows Explorer as administrator, and rename the "Windows Defender" folder in each of the directories to something like "Windows Defender.bak" (do this in both C:\Program Files\ and C:\Program Files (x86))
- Copy the .zip file(s) you made above on to the broken machine, and unzip them into their appropriate locations:
- Unzip "Windows-Defender.zip" to "C:\Program Files\"
- Unzip "Windows-Defender-x86.zip" to "C:\Program Files (x86)\" (if using 64 bit windows)
At this point, visiting the control panel again, revealed a working Windows Defender icon. Also, downloading files through Internet Explorer started working again.
Besides fixing the problem for me, it reveals that Microsoft is not 100% accurate when they say that Security Essentials REPLACES Windows Defender, as it is obvious that Internet Explorer is still trying to use defender to check downloaded files.... The broken/missing Defender created a false result when IE attempted to scan the file, and thus the browser assumes the file is malicious.