What version of windows 7 do you have? and its 32 bit correct?
Well doesnt matter, I was able to replicate this, im working on fixing it. Sorry about this.
There seems to be a issue with the windows/system32 file. O also a note there are still ways you can get to files without explorer, if you open taskmanager select new task, run notepad. You can use its open file menu as a file browser pretty well, just make sure you select all files.