Ref. http://drupal.org/node/159417

In summary:

As I am certainly not the only site developer affected, I wanted to get the attention of everyone about a potential Flash Player problem.
It might save you a lot of headaches and... time.

I just found out that some previous revisions of Adobe Flash Player 9 had some bugs which have been corrected July 10th (last revision).

Notably with IE7 on Vista as well as IE6... in some cases. Maybe on XP too.

After a lot... of hours (close to a week...) trying to find a solution to my problem (here and at a customer's site), I found the info in the SWFObject Support Forum.
http://blog.deconcept.com/swfobject/forum/discussion/577/ie6-ie7-and-web... and
http://blog.deconcept.com/swfobject/forum/discussion/492/flash-player-un...
Many thanks to the Deconcept community.

After reinstalling the Flash Player, everything is NOW working fine in IE 6 and 7 !!!

A little surprised that Adobe didn't push this update... Seems to me quite a few people have a bad Flash 9 player version...
It might also affect different modules using Flash rendering too.

For now, it is simple, remove Flash Player with their provided tool : http://www.adobe.com/go/tn_14157
and reinstall the latest revised Flash 9 (July 10th) by opening your different browsers (one by one) on a page containing flash.

The flash uninstaller and instructions on use can be found here: http://www.adobe.com/go/tn_14157

Uninstalling and reinstalling is the only way to properly deal with corrupt flash player installs which seem to happen on random occasions when upgrading to IE7 / Vista etc. The telltale signs are when SWFObject does not seem to detect your proper flash version or always shows alternate content when you know you have flash installed.

For example, Flash Gallery problems with IE7 / IE6 can well be ->> a Flash 9 problem
Ref. http://drupal.org/node/159417

Regards,
Jean