It seems like there is something that can go wrong with an IE7 upgrade that causes this problem as a side effect. It doesn't happen often, you are the 3rd or 4th person to run into it.
It can be solved by doing a reset of IE7 settings.
Thanks Michael,
Resetting IE to defaults worked!
I'm sorry for the late reply and for repeating the question (I couldn't find similar topic, or haven't used appropriate keywords).