I had a user complain that they could not open attachments via Outlook anymore. The system they are using is a Windows XP Pro SP3 system with Office 2007 installed. Their workaround was to save the document to their My Documents folder (or desktop) and then open that way. I wonder why they complained…

Here’s the exact error:
Cannot create file: (filename). Right-click the folder you want to create the file in, and then click Properties on the shortcut menu to check your permissions for the folder.

Here’s the fix:

Navigate to C:\Documents and Settings\USERNAME\Local Settings\Temporary Internet Files\Content.Outlook\
You’ll find a randomly name generated folder in here. In my case it’s MI2MU5YB. Open this folder.
You’ll now find a bunch of files – all of which you’ve opened as attachments before.
Select All
Retry to open your attachment

***EDIT*** 03.08.2011
I just had a user with this error: Word cannot complete the save due to a file permission error. The same fix above applies in this case. User on XP, office 2007.

And the location on Vista/7 for temporary internet files:
c:\users\YOURUSER\AppData\Local\Microsoft\Windows\Temporary Internet Files\

AND you can just open up Internet Explorer, go to Tools / Internet Options
Then click the Delete… button. I generally only select Preserve Favorites Website Data and Temporary Internet Files. But that’s just me.