I searched and Google’d and ultimately found this blog entry far more exhaustive and authoritative than anything else.
How to get Companyweb (Windows SharePoint Services v2) to work with Office 2007
[updated 9th August 2007 to add read/write document registry change]
A few people said this was a showstopper for them in recommneding Office 2007 to their customers so I figured it had to be fixed. I nixed a huge amount of work from the right stuff blog “Office 2007 File Icons for Windows SharePoint Services 2.0 and SharePoint Portal Server 2003” and the script work from http://blogs.msdn.com/karstenj/archive/2006/01/03/508888.aspx. The problems were: 1) no icons for files 2) file types not recognised by companyweb 3) downloads could not be opened as the file type was said to be a compressed file 4) could not edit from companyweb
** KB936909 is only a part of the puzzle, read the post above for the quick and correct fix.