Pierre-Louis Coll, one of our Senior Escalation Engineers out of Microsoft France, came across an interesting issue that he wanted us to post on askIE.
When you try to save a document opened in a Document Library on a SharePoint Server from an Office application and Internet Explorer 7.0 is installed , you may notice that the folder you are pointed at is not the Document library itself but the Desktop (or My Documents) folder. If you browse to the Document Library from this folder and try to save the document, you get an hourglass for some time but the file is not saved.
NOTE: This happens when an older version of the PSAPI.DLL library has already been loaded in the Office application by a printer driver that comes with its own private copy of this DLL.
The IEFRAME.DLL ,which is needed to display the Web interface and is new to Internet Explorer 7.0, fails to load because this older copy of PSAPI.DLL is already loaded and IEFRAME.DLL requires the newer one that comes with the Operating System and is located in the Windows system directory. The error automatically causes the Office application to navigate back to the last good folder it successfully used in the past.
The best thing to do at this point is to contact the manufacturer of your printer and ask for the latest printer drivers.
NOTE: You may also be able to go online and find the latest drivers yourself.
A printer driver should not require a version of PSAPI.DLL different from the one that ships with the Windows Operating System you are using. You may also search your hard drive for all versions of PSAPI.DLL and rename the ones that are not located in the Windows system directory (usually, the wrong copy is located under %windir%\system32\spool\drivers\w32x86\3\psapi.dll).
NOTE: Knowledge base article 932540 is another side effect of this weird PSAPI.DLL versioning issue.
The IE Support Team