Hi,
It sounds like you have the Office Live Add-in already installed.A few questions:
Do you have the latest version of add-in installed?
Did these problems start after you have uptated your browser to IE8 Beta 2?
Did you try clicking edit on a document to launch the Office Client when you are logged into Office Live Workspace, what happens then?
One possibility is that your webclient service might be disable. To check please use the steps below:
Right-click on "My Computer", select
"Manage". Then expand "Services and Applications" on the left column,
select "Services". On the middle column, scroll down till you find
"Webclient". Double-click on it, make sure it is set to "Automatic" and
click "Start" if it's not started already.
We can look into a few other things depending on this.
Thanks
Kutlay