I have the same problem, but with firefox 3.0b5 and xfce (xubuntu).
I first encountered it with a profile that was upgraded from firefox 2, but
creating a fresh profile didn't help.
Pressing cancel simply cancels the download; no application or dialog appears
afterward.
(Removing "incomplete" status, since the open questions have been
answered.)
** Changed in: firefox-3.0 (Ubuntu)
Status: Incomplete => New
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Open file with external application broken
https://bugs.launchpad.net/bugs/209607
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