If anybody out there has been building demo machines on Windows Server 2008 or Windows Server 2003 you will have run into this issue at some point. Explorer View does not work on document libraries, nor can you map a network drive to a sharepoint site.
Following constellations come together:
a) the server platforms effectively don't like web folder views until you install the fix KB907306
That fix works for both Windows 2003 and 2008.
Now you can happily map a sharepoint site to your network places and use the Windows Explorer to browse the sharepoint sites.
b) your browser now complains that "This folder cannot be opened in Internet Explorer". This will happen when you have IE 7 or higher and protected mode is on. Simple. Disable protected mode via Tools>Internet Options>Security. Remember to add the site to the Intranet Zone
c) What? can't disable the protected mode on Windows Server 2008? No problem. Open the Server Manager. On the root node of the tool you should see Server Summary within there is a section for Security Information. Here you will find a link to Configure IE ESC (Enhanced Security Configuration). That's where you can disable the "microsoft parental controls for dummies" tick box.
d) now you can disable protected mode on the Intranet Zone.
You might ask, why not simply move the site to Trusted Sites. Well, Trusted sites actually have a higher security rating than Intranet zone. Plus you automatically get signed into the intranet zone and not to th trusted sites. Plus the sharepoint site is on the Intranet. So that is also the Zone it should live under!
PS. Running Windows Server 2008R2 or Windows Server 2008 SP1? Then try enabling the Feature called "Desktop Experience" in the Roles and Features configuration of the Server