Yup this is a known bug. Take a look at the discussion on

http://bugzilla.mozilla.org/show_bug.cgi?id=80171

Hope this gets fixed soon.

-Pratik.

Samat Jain wrote:

> As far as I know, this does not work on Win32. Opening an XPI file on 
> Win32 makes Mozilla prompt to save it (uh?).
> 
> I think Mozilla will install the XPI depending on the mime type sent by 
> the server (ex. Netscape's FTP). Opening via File > Open does not send 
> this mime type to Mozilla; Mozilla does not assosicate the .xpi 
> extension with the mime type needed (Thank god. This is what IE does and 
> look at how secure IT is).
> 
> Probably the easiest way to install the XPI is to just download it from 
> the server again and let Mozilla prompt you. Or, wait until a dialog 
> letting you install addons is implemented.
> 
> Marcin Januchta wrote:
> 
>> I'm not sure if someone haven't already said that - I haven't read all 
>> mail regarding this subject.
>>
>> Installing XPI files (as far as I know) is quite easy. You simply open 
>> it with Mozilla. How? Open Navigator then from menu bar choose 
>> File\Open File.. and then choose whatever XPI file you want.
>>
> 


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