Ok well thanks for all the input!
Basically I've ruled out the following:
* IE as default browser
* Symantec EP client
* Specific DLL registration related to Outlook
* local or domain GPO settings
I'm really scratching my head on this one. I also just noticed that the computer gets an Event ID 27 "the operation failed" for Outlook when the error message pops up after clicking on a URL. I've tried everything that comes up in my searches for these issues but haven't found a fix yet. I guess I can try to create a new profile for the user or remove and re-install office as a last resort...what a pain!