I have recently found out that Adobe Air does not honor the default browser. I am using IE8 as my default browser right now, and AIR products open up Firefox. Mike Chambers mentions the issue and links to a fix, but I have a simpler one.
I assume Adobe Air checks the HKCU registry entry first, which may not be set by other programs (which may set only HKLM). So just delete the entry in: HKCU/Software/Classes/.htm (I also deleted the one in .html). Bam! Fixes the issue.
Update! (9/3/08): If you are curious why this is, please check out my explanation.