Wild guess I would say you both use Windows 7 with User Account Control (UAC) enabled,
Xfire requires elevated administrator permissions to run (The small yellow box that appears asking for permissions when you start xfire), so this means that any program that is started/spawned by xfire will also inherit the administrator permissions when run,
This is why you lose your settings because when you run a program as an Administrator, it doesn't use the same directory on your PC to store/read settings files, so as far as te game is concerned, you have no settings,
Sadly, the only solution to this is to either turn off UAC in your account settings on your PC which is not really advisable because it's there for security reasons, or start the game by another method like HLSW or directly from your desktop shortcut,