This feature works only partially for me.
Files witch .chm extension are opened properly (via Windows Explorer).
However, opening help files from other applications (via Help menu) does not make xCHM launch (nothing happens).
I'm using Win32 version.
Just an educated guess, but I think there are two ways to launch a CHM viewer in Windows. The first one, which launches xCHM in your case, involves simply launching a new xCHM process with the CHM document as a parameter. The second (which is probably the case where it doesn't work) is to use a COM+ CHM viewer component. I'm assuming that's the way some Windows applications do it, and since xCHM has nothing to do with COM+, it can't replace the default functionality in those cases.
Sorry, but it's a limitation you will have to live with I'm afraid.