Found this resolution to this irritating problem:
IE prompts which browaser should be default and locks up the browser until the prompt is answer, but your unable to continue because the button is grayed out.
System Restore resolves as this occured after a windows update:
Also tried this:
1. Re-assert Internet Explorer as the default Browser in the CUSTOM (<=important!) section of Set Program Access and Computer Defaults (ignore the “Use my current brower” option).
2a. Right-click on the following link & select SAVE TARGET AS… to download/save the file to your desktop:http://www.slipstick.com/doit/chromehtml.reg 
2b. Double-click on the file you saved in #2a above & accept the prompt to MERGE the data with the Registry.
3. IMPORTANT – DON’T SKIP THIS STEP! => Open Internet Explorer (only!) tohttp://support.microsoft.com/kb/923737 & run a Reset.
Tip: For optimal results, check the Delete personal settings option
4. Reboot & test.