I guess I am being dense or maybe Windows 8 is doing something to really confuse me....

Just as you described there is a .jpg key in the registry and it's OpenWithProgIDs points to jpegfile. What's confusing is, when I look at the jpegfile it already has the exact value you provided with the $open command. However, when I go to Control Panel and Set Associations, .jpg is associated with "Photos" (the Metro/Modern App). When I change it in the GUI, it then says "Windows Photo Viewer", however the value in jpegfile registry setting remains exactly the same.

Any ideas?