Restricting users from saving files...

Clarifications

You can try the don't save settings on exit to see if that works (this with
in group policy), I know something such as added shortcuts will stay.

There is a way that will work, modify the users profile to be a Mandatory
profile. Once a profile of a user is created change the ntuser.dat to
ntuser.man. Any time a user makes mods to the profile they will be dropped
once the user logs off and logs back on.
Thanks to Paul Bergson for this.

http://technet.microsoft.com/en-us/library/cc776120.aspx

Please post back if you have any more problems or questions.

To answer your question;
Tools\Internet Options\security\custom level, scroll down to "Downloads" and click the "disable" radio button. Now, how do you keep users from undoing it? How do you lock down;
Desktop
Windows Explorer
My Documents
External drives
etc.
In a kiosk situation where the computer is open to the "public" you really need some app that can do all the security for you. Yes, TweakUI can help but its no where near enough.

There is a limited # of things you can lock down in group policy under administrative temmplates but not enogh to be totally secure. A third party product is the way to go.

Windows steady state is free. I have not done extensive tests on it but it seems to work the way the say it does. Here is the link.

http://www.microsoft.com/windows/products/winfamily/sharedaccess/default.mspx

Post back if you have any other questions.