Open a command line window and enter the following:

cd %UserProfile%\Local Settings\Temporary Internet Files
rmdir /s /q OLKEE0
exit

Now try again.  If that doesn't work, post back.

PE, try this.  It works!
Outlook 2000, XP, and 2003 Can't Open E-mail Attachments
You may receive the following error message when opening attachements in
Outlook (such as PDF faxes): "Can't open this item. Can't create file:
send2fax1.pdf. Right-click the folder you want to create the file in, and
then click Properties on the shortcut menu to check your permissions to that
folder"
Microsoft Outlook uses a temporary folder to save and open the attachments.
By default that folder is:
C:\Documents and Settings\%USER_NAME%\Local Settings\Temporary Internet
Files\OLK#\ (where # is a random number)
Some of the latest security updates for Windoes 2000 and XP are preventing
folders to be created in that folder. The solution is to use the regular TEMP
folder.

Exit all other programs, especially Outlook.
1. CLick "Start", then "RUN"
2. Type: 'regedit'
3. Select My
Computer\HKEY_CURRENT_USER\Software\Microsoft\Office\11.0\Outlook\Security
Note: Depending on your version you may have to modify that path after the
"Office" key. You may have folders 8.0, 9.0, 10.0, 11.0, go the highest
number. This is probably the version that you use.

2. Modify the Key "OutlookSecureTempFolder", by replacing "Temporary
Internet Files" with "Temp".  Right click on this item and select 'Modify'.  
For example:
OLD VALUE: C:\Documents and Settings\yourname\Local Settings\Temporary
Internet Files\OLK177\ (you may have different number than 177)
NEW VALUE: C:\Documents and Settings\yourname\Local Settings\Temp\OLK177\

3. Restart Microsoft Outlook.