There is no limitation and QTP 10 works well with IE 8.0 & Vista.
It seems that something isn't working properly or not installed correctly. I would recommend to uninstall - and than install again and check if this issue still happens. If it does there are few things that we can validate.
Roy: Tried un-installing and re-installing as suggested but no luck as yet...btw even applied the IE8.0 support patch....hmm..no luck even then...there seems to be some prblm or something missing....any suggestions welcome..
Sudhakar: I wanted to go back to IE7.0 but I don't see the option in Add/Remove prgms...I guess it is now part of SP2 in Vista and I have SP2.....do you know of any other alternate method...do lemme know....