The exact same issue happened to all of my 5 test PC's, so something must be seriously wrong. Perhaps the WSUS download was corrupted?
Anyhow, I downloaded the standalone installer and installed that over the WSUS install on one of the PC's, and after that IE7 works. One strange notice about this was the the standalone installer didn't recognize any IE7 installation at all, not that I know if it should or not...
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The tart is out there
