I was having this same problem with Acrobat 5.1 and IE 6.0.2800.1106. IE would display the File Download dialog, and detect the PDF content type, but no matter if you either chose Open or Save, IE would complain about not finding the file, and to try again later. But it has no problems with actual PDF files, only the streams.
This fix, from http://www.lowagie.com/iText/faq.html#msie and Nicolas Guichard,
removes the problem:
response.setHeader("Cache-Control", "must-revalidate, post-check=0, pre-check=0");