Unable to open folders on Mac OS X 10.4.11

I'm unable to open anything on my desktop with the usual double-click. Words highlight but icons, folders, downloads, and even applications won't open. Dock items only are working fine.
I've read previous notes and 1. checked mouse, which is working fine; 2. deleted superfluous files on desktop; 3. successfully run "repair disk permissions" in utilities with no error messages; and 4. popped in Mac OS X Install Disks 1 and 2. On disk 1, I double-clicked folder "Apple Hardware Test Read Me" but it wouldn't open. On disk 2, the only file there was "Installing Mac OSX and Applications." When I double-clicked on that -- surprise! -- that wouldn't open either. What's up, and how can I restore my trusty old Mac to its former trouble-free status?

I note you've used Disk Utility > Repair Permissions, but I suggest trying that operation again, but using OnyX Titanium Software.

Second, since 2x-click doesn't open folders, have you tried the evergreen Cmd-O (letter O) once a folder's been highlighted?

Third - how did you test the mouse operation to show that it "is working fine"? You might try another mouse meantime, you don't require an expensive one, a cheap generic model will do fine.

Did you boot from the install disc as advised previously and run Repair Disk as you cannot repair a hard drive you are booted from?

To access Apple Hardware Test, pop in disc one, reboot, and immediately after the chime hold down the Option key if it is a PPC machine, D if it is an Intel. Really does help if you provide machine information.