Kindly am running on windows 7 and the open folder in the same window option is not working.
This seems to be a bug going up to windows vista and possibly windows server 2008...
A quick workaround is to remove the navigation pane from the left by clicking organise -> layout -> and deselecting navigation pane, and then after to apply the setting to all folders by going to organise -> folder and search options -> view tab -> apply to folders.
Close all windows and should be OK. It worked for me...