What happens if you use "Start > All Programs > Set Program Access and Defaults > Select the "Microsoft Windows" radio button > click "OK" > attempt using IE?

If this works, then you can obviously go back into the "Set Program Access and Defaults" and use the "Custom" category to modify any settings for your system.   

Next basic question:

How about System Restore to before installing the optimizer update?

Okay,

Have you gone into Internet Options and reset the following:

1 - Programs tab > Reset Web setting button > Yes to confirm

2 - Advanced tab > Restore Defaults button > Apply

Also, you may try looking in the "Programs tab > Manage Add-ons button > disable any listings for the Yahoo toolbar shown.

If #9 fails, here is the download page for Windows Script 5.6 for XP and 2000 http://www.microsoft.com/downloads/details.aspx?FamilyId=C717D943-7E4B-4622-86EB-95A22B832CAA&displaylang=en

Your script engine may have become corrupted somehow. This is the current script used by IE 6 under XP and 2000, so is safe to install.

Unless anyone has a better idea, you can do a repair (reinstall) of Windows XP as instructed here http://support.microsoft.com/kb/315341/

I would recommend Method #2, but either will do.

Beware that Microsoft indicates that it is possible for some data loss and/or loss of some program settings when performing this. You can read more by using the links at the bottom of the page to prepare before performing the repair.

Note - if you decide to do a repair as indicated above, I would recommend uninstalling Windows XP Service Pack 2 before attempting a repair which is described here http://support.microsoft.com/kb/875350/en-us

The reason being that with SP2 installed, the repair procedure may throw a message saying something like "Set-up has detected a newer version of Windows installed", which may prevent it from completing (or even beginning).

This is where my concern lies.

Uninstalling manually may or may not have created an issue with IE.

If you want to try things other than a repair, you might try the following basic first steps for troubleshooting:

1 - Reinstall the Optimizer program, and reinstall the Yahoo toolbar (this one you might want to download directly from yahoo site).

2 - After installing these, disconnect from the internet (including disconnecting the cable between the computer and the modem - if used - at the modem).

3 - Go into Device Manager, and uninstall the NIC card (or modem if on dial-up) > reboot > allow XP to reinstall it > reset your modem by pulling the power plug and waiting 60 seconds (if you use broadband connection) > plug modem power cord back in and wait for the lights to indicate a live connection > connect the cable which connects the computer to the modem back in, and reboot the computer > once booted, go into Network Connections and repair the connection via the context menu > attempt to view a page with IE (note - if IE still has issues, use the Start > Run > "http://www.msn.com" command to load the default browser and verify a connection.

If Firefox loads, then obviously IE has been bumped from the default position.

If all goes well, use the proper method to uninstall the Optimizer and Yahoo toolbar (via either the Start > All Programs > Program folder, or via "Add or Remove Programs), and then reboot computer.

This is where my concern lies.

Uninstalling manually may or may not have created an issue with IE.

If you want to try things other than a repair, you might try the following basic first steps for troubleshooting:

1 - Reinstall the Optimizer program, and reinstall the Yahoo toolbar (this one you might want to download directly from yahoo site).

2 - After installing these, disconnect from the internet (including disconnecting the cable between the computer and the modem - if used - at the modem).

3 - Go into Device Manager, and uninstall the NIC card (or modem if on dial-up) > reboot > allow XP to reinstall it > reset your modem by pulling the power plug and waiting 60 seconds (if you use broadband connection) > plug modem power cord back in and wait for the lights to indicate a live connection > connect the cable which connects the computer to the modem back in, and reboot the computer > once booted, go into Network Connections and repair the connection via the context menu > attempt to view a page with IE (note - if IE still has issues, use the Start > Run > "http://www.msn.com" command - without quotation marks, to load the default browser and verify a connection).

If Firefox loads, then obviously IE has been bumped from the default position.

If all goes well, use the proper method to uninstall the Optimizer and Yahoo toolbar (via either the Start > All Programs > Program folder, or via "Add or Remove Programs), and then reboot computer.

BTW - since I can't seem to type the address without creating a link above, just note or copy the msn address including the "http://" to use in the run command.

All basic stuff that you may or may not have tried already.