As watching replays via SC2 client's replay browser seems working fine, you might mean watching replays by launching them e.g. from desktop? For this you have to use SC2Switcher.exe that can be found from support directory: [path to sc2]\Support\SC2Switcher.exe
For me on Win7 the SC2 updater had messed the paths in win registry and I had to manually fix them. The updater had used mixed slashes & backslashes (/ & \) as directory separators in the path (should be \). You might want to check the registry key [HKEY_CLASSES_ROOT\Blizzard.SC2Replay\shell\open\command]. But it is not recommended to edit the win registry if you do not know what you are doing (you may also need to check other keys, search for sc2replay). Also as a cosmetic issue they have removed the icon for replay files (only the main sc2 icon remains).