Yeah, I get it now too. It's a procedural thing. I just changed my file types in WIN Explorer to associate HTML with the browser (rather than UE directly), and modified my registry to automatically open UE on "View Source". Now, I double-click on the html file and it loads in the browser, then I right-click and view source, which launches UE, I edit the file, click the save button, and then click the refresh button in IE7 and viola! (It helps to have two screens light I do!)
So, I really didn't need the browser button unless I decided to edit the HTML source directly off the disk, launch a new browser window using the toolbar button and then start repeating the edit-save-refresh steps listed above.
Thanks so much for providing me the needed insights to get this solved.
PS: My contribution in case anyone cares will be the view source IE registry entry (just in case the OS or UE does not pickup on it).
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Internet Explorer\View Source Editor\Editor Name
Change: (Default) to: C:\Program Files\UltraEdit-32\uedit32.exe
(BE CAREFUL of such antics!)