For what it is worth I have a system running XP Sp2 and V5 Report Explorer and have no problems - the system even recognises .prf files used by AOL for entirely different purposes (PICS rules File).
I should mention that this system was delivered with XP Sp2 and the Report Explorer installation was performed as part of a fresh Monarch V7 install rather than an upgrade process.
After running the mre500iu.exe update for the Monarch Report Explorer 5.00 program, when trying to open an associated PRF file an error message "Not a Portable Report" is displayed. Reassociating the PRF to Monarch still does not correct this message. The files can be opened through Monarch by going to file and open. What fix is there so when double-clicking the PRF the PRF automaticallly goes to Monarch? Is this becoming a new issue for Windows XP SP2 users?