One of the things I like least about IE (and am least happy that we're not addressing in IE7) is the use of Notepad to view HTML source code. While many fantastic web pages have been built in Notepad, it wasn't a state of the art editor in 1995 let alone 2005.
There are a lot of text editors out there that are better than Notepad (I like Notepad2, a very slick, free editor with extensive syntax highlighting, regex searches, and a small package). But, none of these is as useful if it's not integrated with IE's View Source command. Fear not, intrepid reader, you can point IE to use another editor pretty easily, if you don't mind using RegEdit.
Honestly, I found this on the web (sometimes it's faster than asking the IE developers, especially since they're busy on IE7.) I got this from Thea Burger's blog and copied and pasted the clear instructions. He even likes Notepad2 also. (I did make one small change, fixing some terminology.)
Run REGEDIT, follow the following directions to the proper key.
|--- Internet Explorer
|---- View Source Editor
|----- Editor Name (Default) = C:\windows\notepad.exe
If this doesnt exist (but it should) then create the Key "View Source Editor".
Then create a Key within that named "Editor Name". Modify the "(Default)" value to make it point towards any program on your computer using "D:\Tools\Notepad2\Notepad2.exe" (without the quotes).