My testing indicates that you must enter the appropriate url directly into Internet Explorer's address bar to have them open there (instead of opening in the associated application). Right-clicking on a file in Windows Explorer and choosing Open With "Internet Explorer" will instead open the documents in the associated application.
There might be settings in IE that modify this behaviour, but I am not aware of what they might be. Regardless, files properly configured in Ultra Recall (such as .doc/.xls) should open writeable correctly in the Internal Browser View (embedded Internet Explorer) in Ultra Recall. I only recommended attempting to open them directly as a test to verify that the problem wasn't something weird with Internet Explorer...
I assume that the documents do display correctly in Word/Excel respectively (even when they are stored in Ultra Recall)? Is the problem occuring with linked documents/stored documents or both?
Can you send an captured image (print screen, etc) of UR showing the "garbage characters" to
support@kinook.com? That might help us understand what you are seeing.