In MSIE 7, I noticed a bug when a modal dialog with an overlay enabled is covered by the overlay during resizing/dragging.

You can use attached file to reproduce this bug (modified ui.dialog.html demo page):

<h2>3. Buttons</h2>
<div class="playground">
	<div id="example3">Please select an option below.</div>
	<br />
	<button onclick="$('#example3').dialog({
		title: 'Are you sure?',
		modal: true,
		overlay: {
      'backgroundColor': 'black',
      'opacity': 0.7
    }
		buttons: {
			'Yes': function() { $(this).dialog('close'); alert('You clicked \\'Yes\\''); },
			'No': function() { $(this).dialog('close'); alert('You clicked \\'No\\''); }
		},
		draggable: true,
		resizable: true
	});$(this).hide().next().show();">Create Dialog</button>
	<button onclick="$('#example3').dialog('open')" style="display:none;">Open</button>
	<button onclick="$('#example3').dialog('close')">Close</button>
</div>