I am having the exact same problem and I can verify that it is avast! that’s preventing downloads. Windows media player will not buffer and download managers such as Getright will not work either. I’ve been working on this all weekend long thinking it was a firewall problem also but I’ve just disovered after about six restores and numerous installs/removals of various programs and even removing the IE index.dat and starting from scratch that it’s the latest update to avast! that’s causing this. avast! has to be removed to download, even when disabled it still blocks downloads.

Windows XP Pro / Service Pack 2
IE 6.0.29
avast! version 4.5 Home Edition
build 4.5.523/vps file version 0447-1