I encountered with this issue in MOSS 2007. Auditing reports was opened from common SharePoint auditing page.
This page contains hyperlinks to auditing reports.
When any user tries to open this hyperlink, "open file" dialog does not appear, instead of this a IE browser silently open in text XML format.
I suppose that common behaviour is when user open a hyperlink, report will open with excel application through "open file" dialog.
For example, hyperlink in SharePoint contains URL:
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