I can't reproduce this with OS X 10.6 and Launchbar build 655, but the first thing I would try is to take the code text above (rather than the zip), save it to a fresh .scpt from the Applescript editor, and see whether the freshly compiled script still confuses Launchbar.

(Another issue is, of course, that one can not run this script in the background from LB [opening it with Option - Return] because it uses a dialog).

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