It looks like the default association of your PDFs was set to Adobe Acrobat, when you installed Adobe Reader 9.4.0. I would request you to either uninstall Adobe Reader 9.4.0 and install it again. This time around, you will receive a window asking you to chose between Adobe Acrobat 7 and Adobe Reader 9.4.0 as the default PDF viewing application, make sure you select Adobe Reader 9.4.0 and continue on. This will associate Adobe Reader 9.4.0 as the default PDF viewing application and your internet explorer will be able to open PDFs without an issue.
If an uninstall seems out of the question, you can change the following registries to point to the path of AcroRd32.exe (i.e. the path wherein you have installed Adobe Reader 9.4.0. By default it would be something like: C:\Program Files\Adobe\Reader 9.0\Reader\AcroRd32.exe). The quotes mentioned below are intentional and must be included.
i. HKEY_CLASSES_ROOT\Software\Adobe\Acrobat\Exe\(Default) - Change the value to "C:\Program Files\Adobe\Reader 9.0\Reader\AcroRd32.exe"
ii. HKEY_CLASSES_ROOT\AcroExch.Document.7\shell\Open\command\(Default) - Change the value to "C:\Program Files\Adobe\Reader 9.0\Reader\AcroRd32.exe""%1"
iii. HKEY_CLASSES_ROOT\AcroExch.Document.7\shell\Read\command\(Default) - Change the value to "C:\Program Files\Adobe\Reader 9.0\Reader\AcroRd32.exe""%1"
This should set the default application to view PDFs as Adobe Reader 9.4.0 and let you view PDFs in browser as well.
Hope this works.