First time I've heard of this, but I'm on OS 10.2.8.

I think the default browser is read from the Internet Panel in System Preferences, so you could look at that pref. There is also a LW preference to load on start-up, so maybe your system is reading the .dmg installer as a IE document. Try unchecking the LW pref, and removing any LW/IE icon from the Login Items in the OSX System Preferences.

Sorry if the prefs are different in Panther, but I hope this at least suggest some prefs to look at.