Ain't this grand?
I've been experiencing this on a number of systems -- all running XP; 2000 never did this. AI/EPS files in the Recycle Bin, even on your HD, will do it too.
This *HAS* to be Adobe's problem, as it's their crappy shell hook that seems to be dying. I just submitted a bug report about it a few days ago including a snapshot of the crash screen showing "aiicon.dll" but according to my webserver logs they've never even looked at it, so who knows if they even care.
When you open a folder, Windows digs through the filetypes among other things and gets icons for the file types it encounters. Adobe's shell extension hooks into this behaviour and will first try and "sniff" the files and then return a customized icon based on what it finds. It probably does some other voodoo in different contexts as well (thumbnails, metadata, who knows).
My only guess is that it can't cope with read-only filesystems, which is a joke.
Anyway, you can "stop" this problem by searching for "aiicon.dll" and just renaming it.. should be somewhere like C:\Program Files\Common Files\Adobe\Shell -- this (unfortunately?) breaks all your pretty icons for AI-related files. You can manually go back into Windows' own file type setups and set the icons for ".eps" and ".ai" etc back to a particular icon from the DLL if you just can't live without these stupid pink flowers all over your files :) It's faster browsing discs with lots of files or big files anyway, aiicon just bogs you down as it looks at every file.
If Adobe really told you they don't "support" browsing files off a CD, that is absolutely ridiculous. How do they expect people to back up their doents and use them? If Explorer crashes everytime you browse the CD, how are you going to copy them back to the HD-- is Adobe suggesting that all users need to use the Commandline just to access their doents?