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When I click on a text file and say open (.txt is associated with text pad), texpad tries to open each portion of the file location in a separate (fake) file: e.g., c:\documents and settings\gfurash becomes "c:\documents" "and" "settings\gfurash" - none of which are real files.

I have the latest version of textpad installed

1. complain at Microsoft for allowing spaces in file/folder names

2. if 1. does not help, fix your association so that the file name is in "" quotes (e.g. "%1" instead of %1

3. if 2. does not help, set Textpad's option "allow multiple file names on command line" to unchecked

Also - check your "files in document class" settings .. if it really does say ".txt" then try "*.txt" ... because i'm not experiencing the problem you described and mine says "*.txt"