May I add...
If I create a new local user on machine, they can set file extensions with no issue. Though, the original user has local admin rights, they still cannot add photoshop in there. It's only photoshop too. you can set dreamweaver as the default program, just not photoshop.
so, for those who HAVE this option available to them, you can recreate your local machine user account and get access back, but it's a lengthy fix for an issue that should be a bug.
***I BELIEVE I HAVE FOUND THE ROOT CAUSE AND SOLUTION***
After looking at a new user's registry HKEY_CURRENT_USER and comparing it to the one on the original user, I found a registry value which was not changed, and should have been.
I found a key:
HKEY_CURRENT_USER\Software\Classes\Applications\Photoshop.exe\shell\open\command
This key was set to the path for Photoshop CS6 when it should have been set to Photoshop CC.
In other words, in my case, it was set to:
"C:\Program Files\Adobe\Adobe Photoshop CS6 (64 Bit)\Photoshop.exe" "%1"
When I changed the CS6 to a CC, in other words, so the whole key reads:
"C:\Program Files\Adobe\Adobe Photoshop CC (64 Bit)\Photoshop.exe" "%1"
Everything now works perfectly.
There's no question this is an installer bug and I imagine it's going to hit anyone who upgrades from CS6 to CC. The fix is easy if you are comfortable with editing the registry but it should be fixed in the installer. This is an Adobe bug, plain and simple.
If you create a new user, since it has no keys for HKEY_CURRENT_USER it creates them properly.
I would like to thank pbody01 for pointing me in the right direction and I am curious to see if this fix works for other people.And hey, just 'cause... make sure you do a backup and especially export the registry before you go in there. 