Contents of the Open and Save As Dialog Boxes Sorted Incorrectly (Q233526)
 http://support.microsoft.com/support/kb/articles/Q233/5/26.asp 
 Also see  http://support.microsoft.com/support/kb/articles/Q229/0/70.asp

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The information in this article applies to:

Microsoft Windows 98 
Microsoft Windows 95 

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IMPORTANT : This article contains information about editing the
registry. Before you edit the registry, make sure you understand how
to restore it if a problem occurs. For information about how to do
this, view the "Restoring the Registry" Help topic in Regedit.exe or
the "Restoring a Registry Key" Help topic in Regedt32.exe.

SYMPTOMS
When you use the Open command or the Save As command in one of the
following utilities in Windows 98, the items in the Open or Save As
dialog boxes may be sorted incorrectly:

Notepad 
Browse window 
Paint 
WordPad 

For example, files may be listed before folders, items may be sorted
in descending order, and so on.

CAUSE
This behavior can occur if the ShellState value in the registry has
been changed or is incorrect.

RESOLUTION
WARNING : Using Registry Editor incorrectly can cause serious problems
that may require you to reinstall your operating system. Microsoft
cannot guarantee that problems resulting from the incorrect use of
Registry Editor can be solved. Use Registry Editor at your own risk.

For information about how to edit the registry, view the "Changing
Keys and Values" Help topic in Registry Editor (Regedit.exe) or the
"Add and Delete Information in the Registry" and "Edit Registry Data"
Help topics in Regedt32.exe. Note that you should back up the registry
before you edit it. If you are running Windows NT or Windows 2000, you
should also update your Emergency Repair Disk (ERD). To resolve this
issue, set the ShellState value in the registry to the default value.
To do so, use Registry Editor to view the following registry key:

HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer 
If needed, edit the "ShellState" value to match the following value:

0000  1C 00 00 00 A7 02 00 00
0008  00 00 00 00 00 00 00 00
0010  00 00 00 00 01 00 00 00
0018  0A 00 00 00 

NOTE : This value has been wrapped for readability purposes, it must
be typed as one line. Also, you do not have to restart your computer
for these changes to take effect.