FTP Problems with Proxy & IE 7-8

In IE 6 we were able to connect to FTP sites and do the file Login As
from the Internet Explorer Menu.

This summer everything was upgraded to IE7 & some IE8. Now when I go
to connect to the ftp://ftp.domain.com it shows the open public
folders like it did in the past, however, The File, Login As is gone
from IE. Now you have to go to Page, Open FTP Site in Windows
Explorer. When I do that I get the following message:

FTP Proxy Warning
The folder ftp://ftp.domain.com is read-only because the proxy server
is not set up to allow full access.

To move, paste, rename, or delete files, you must use a different
proxy, contact your administrator.

I've looked for an old IE6 machine, but I guess we did too good in
getting them all updated.

This is on NW6.5SP8 BM 3.91. Any ideas on is this a Windows issue or
really a proxy issue.

Thanks