Hi Dewald,
"I also tried updating the membersheet_version field from 2003 to 2007" if you have 2010 you should set to 2010.
check if you have installed .NET 3.5 SP1 Client.
"perhaps there is a minimum service pack that must be installed?" I don't think so, there aren't notes about that only the one you have seen.
"Any ideas where the behaviour to open a new instance of Excel comes from - is it BPC specific behaviour, or Internet Explorer?" it should depend from BPC.
Have you tried uninstall deleting the PC_MS folder and reinstall bpc?
If so I would ask to SAP what could be the issue.
Kind regards
Roberto