If you have items on your Windows Vista start menu that do nothing when you click them – and you know they should be working – such as Word or other Office programs, then this may be your answer.
For starters, if you have KDiff3 installed then the answer to your problem may be simple – the problem is with KDiff3’s context menu handler – see http://sourceforge.net/tracker/index.php?func=detail&aid=1759117&group_id=58666&atid=488548.
If you do not have KDiff3, then you might want to look at point 12 on this page: http://windowsxp.mvps.org/slowrightclick.htm. Follow the instructions to use ShellExView until your shortcuts start working.
Big thanks to Rosso for taking the time last year to figure this out!