We are also having a problem with PowerPoint presentations. We upgraded to Moodle 1.8 this summer. We use IE7. We also had the problem with PPT not opening correctly, but solved that issue (not sure how, IT took care of it). The problem we have now is that anytime a Powerpoint presentation is inside of a folder, it will not open. We get a white screen. If you take it out of the folder it works fine.
As a certain professor at our college says, "This is unacceptable!". He likes the functionality of having folders to organize his materials. I have tried opening the files in Firefox and it does work fine, but our institution wants to only use IE7.