Microsoft Internet Explorer 7 (MSIE7) doesn't open .xhtml files; instead it uses Firefox (probably because Firefox is my default browser). MSIE7 behaves that way regardless of whether I use the Open With context menu item in Explorer, open the file using its file browser or drag-and-drop that file into its window. On the other hand, Opera browser will open an .xhtml file. MSIE7's behaviour is a bit annoying because I go out of my way to test my web pages on different browsers.
I worked around this MSIE7 annoyance using NTFS hardlinks (similar to Unix hardlinks). When you create a file, a hardlink (or name) referring to this file is also created. You can create other hardlinks (or names) that refer to the same file using fsutil utility. A file is only deleted when the last hardlink is deleted.
To create a new hardlink called Name2 for an existing file called Name1 using fsutil, open a command shell and enter: fsutil hardlinks create Name2 Name1.