The problem and workaround is documented in the Known Issues List: https://atjira.doit.wisc.edu/KnownIssuesList/RequestController?issueId=21073&stylesheet=knownissues.css
Here's what it says:
Desire2Learn Issue Detail
Basic Information
Issue Key: DTL-1719 Issue Type: Information Report Date: 2009/06/04
Issue Status: Reopened Priority: Major Last Updated: 2009/06/18
Components: Content Tool
Description
8.4 MR1 - IE7 initially blocks upload of some file types in Content: ppt (except when embedded), pptx, docx and xlsx
Problem: When Internet Explorer 7 finds a security concern with a file, it puts out a message underneath the browser navbar. It is neccesary to click on "Click here for option" and "Download," The process takes you back to the course homepage. Go back into Content and click on the topic that IE7, you are prompted to "Open." As long as you remain in Content Tool, other topics with same problem will get the prompt. It objects to ppt (except when embedded), and 2007 Office files: pptx, docx and xlsx. If these same files are used in Dropbox submissions or as Discussion attachments, they open fine. Firefox 3 automatically prompts to download the files.
Workaround: You can disable this feature in Internet Explorer 7 by the following steps: Click the Tools button, and then click Internet Options. Click the Security tab, and then click Custom level. Scroll to the Downloads section of the list, and then, under 'Automatic prompting for file downloads', click Enable.Possessor: D2L Support