In Windows 7 (each build I tried, 6xxx, 6956, 7000) when I right click a file/folder my right click menu is really expanded. OS up-to-date on a Dell Inspiron 1501 w/ AMD Sempron 3500+ 1.8GHz, ATI X1150 256MB, 1.5GB RAM:
That's already been solved: http://windows7forums.com/windows-7-support/1384-hmm-what-causing.html
In short, WinRARs shell extensions are causing this.
In addition to the solution given in this thread, my advice is not to install WinRAR in the first place and to go for IZARC or 7Zip instead. (I'm using the latter and its shell extensions are working fine. You can't create rar-Archives, but what's that gonna be good for anyway? Rar being better than insert-compression-format-here is a myth nowadays.)