I narrowed this problem down as far as I could. First, I reset all of my IE security levels to default and cleared my cache and cookies. I also disabled ALL of my add-ons. I have IE version 7.0.5730.11, BTW. Next, I stripped down my HTML file until all I had was a bare bones HTML file with an include of jquery-1.3.1.js. Then, I started going through jquery and ripping out code until I hit the following line:
div.innerHTML = ' <link/><table></table><a href="/a" style="color:red;float:left;opacity:.5;">a</a><select><option>text</option></select><object><param/></object>';
If I take that line out, in particular if I take out the "<object><param/></object>" part at the end, then the warning message goes away.
So, finally, I brought up regedit and did a search for "VFW". Sure enough there were numerous references to DLLs with "vfw" in the name and a "vfw" file extension type. These all related to MPEG codecs, Microsoft Video, Quicktime, a video camera I have, etc. Why the object tag and IE7 are picking on VFW, I don't know. Anyway, that's the problem. I don't understand what the point of that code in jQuery is, but maybe it can be removed or recoded.