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So you can do your editing in that copy of the file just fine, but you need to "save as" a file in My Documents or somewhere BESIDES the temp internet files folder, so that you can access the edited file to upload it with your FTP client. (In other words, you can't just click on "save" and expect the file to overwrite the source file on the server - it's two totally separate functions/situations.)
I don't know that you can automatically edit in notepad from view source, save the edited file, and expect it to save on the server. If that's a new functionality, that'd be nice.
Even opening a cached version of a page source directly in an editor gives a lot of options for analyzing the code - it's great for research.
If that's the case, I can think of a couple of things that might have changed (though I would of course have no way of knowing HOW they would have got changed!):
1. The .html extension is no longer recognized as editable in notepad (any installations of anything lately that might have changed your extension listings?) You can change the action for this extension in My Computer/Tools/Folder Options using the File Types tab.
2. Somehow your html page has been saved as a "read-only" file, so in order to open for edit in notepad it is opening as a "new file" which would explain the [1] in the title bar. You can try right clicking on the original html file and click on Properties, then on the main screen tab, at the bottom, check that the "read only" box is empty.
If neither of those helps, please let us know.
And welcome to Webmaster World!