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"Directory", not "Folder"

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Your installer makes a common. It attaches the handler to HKLM/Software/Classes/Folder. It really wants to be on HKLM/Software/Classes/Directory.
 
"Directory" applies just to physical directories on a disk.
"Folder" is anything which appears as a folder in Explorer: directories, but also Printers, Control Panel, Recycle Bin etc.

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