Denying access to C: Drive

Hi. Is their a way of stopping acces to the C: drive through the File open shell. When pupils open a file, they type C: in the file name box. This gives them access to the local drives, if they navigate to windows and click once on say regedit, and use the tools drop down menu and click add to favorites. This will allow them to open internet exploer, choose favorites and chooose regedit from the list, this will allow them to do want they want. This will work with most programs. They cannot acces the C: drive through windows or internet explorer due to policies being implemented. This seems a back door in Office 2000. Any Idea? We are running 2003 server with win 98 and XP clients. This problems works on both clients.

Thanks