It may be a registry thing dealing with file associations. On the machine that is failing when you double click on an .AI file like in file explorer does windows start AI up and pass the ai file? I would think the embedded object would be an .ai file. I do not use AI...
I install AI on my surface pro 3 and see that .ai file are associated to Adobe Illustrator cc 2017.
When I double on an .ai file AI was started an passed the file however I don't know how to use AI nor do I want to learn how to use AI I do not have the time required
When I dragged an AI file into a document in Photoshop an Open as smart object dialog opened up and I accepted.
When I double clicked the smart object in the layers palette AI opened.
I can also Photoshop menu File>Place Embedded to place in an .ai smart object late the open AI when double clicked.
If you are not getting the Open as smart object dialog when you drag in an .AI file try using menu File>Place Embedded to create the smart object layer. See if that object will open AI when double clicked.
Try going into your file properties and 1. make sure it has a ".ai" extension and 2. Make sure the document type is associated with opening in Adobe Illustrator.
Thanks kstohlmeyer1 and JJMack,
While I was waiting for responses I ended up working out that the files (while opening up in Illustrator 2017.0.2) were opening in an older version?? (2015.3). I did the 'properties' thing as kstohlmeyer1 had suggested and it worked. I changed it from "C:\Program Files\Adobe\Adobe Illustrator CC 2015\Support Files\Contents\Windows\Illustrator.exe" to Illustrator 2017.
So for anyone else having this problem, after you perform an Illustrator update, ensure that your Illustrator files are set to open up in the latest version by right clicking on an Illustrator file, choosing properties and open with whatever your latest version is.