I recently ran into the same problem, and I THINK I've got a solution for you.

The problem isn't with Outlook's settings, but rather with the temporary
attachments folder itself.

What you'll want to do is clear all the files out of this location.  I don't
really understand why, but apparently after too many files end up in there
problems like this start to show up.

In XP, you will want to go to C:\Documents And Settings\[PROFILE]\Local
Settings\Temporary Internet Files\[Outlook Temp Folder].

Keep in mind that the actual name of the Outlook temp folder is somewhat
random, but should begin with 'OLK...'.  Easiest way to figure out what it is
is to locate a .DOC, .XLS, etc attachment within one of your emails, open it
as you normally would, and then go to SAVE AS from the FILE menu.  The
default directory that shows up is the directory in question.

Anyway, get in there, blow everything away, and try it again.

-Bob