I do not have this problem - I change both (either) Inbox or Local Folders to a minus sign - leave it that way and OE always opens that way!
This is from OE Help:
To change the Outlook Express folder list, status bar, or toolbars
To hide or display the Folders list, Contacts list, Outlook bar, status bar, or toolbars, on the View menu, click Layout, and then select the options you want.
To display subfolders in the Folders list, double-click the plus sign (+) to the left of each of the main items in the Folders list (Local Folders, your e-mail server, news servers, and so on). All of the subfolders appear beneath their main folder or server, and the plus sign becomes a minus sign.
If you click the main folder name instead of its plus sign, the subfolders display in the main Outlook Express window, rather than beneath the folder or server in the Folders list.
I am sure you already have this covered - but as a side note - I installed XP SP1 - I never installed IE SP1 by itself - it is my understanding it is part of XP SP1.