Phishing using IE7 local resource vulnerability

Summary
Internet Explorer 7.0 is vulnerable to cross-site scripting in one of its local resources. In combination with a design flaw in this specific local resource it is possible for an attacker to easily conduct phishing attacks against IE7 users.

Affected versions
 Windows Vista - Internet Explorer 7.0
 Windows XP - Internet Explorer 7.0

Technical Details
The navcancl.htm local resource is used by the browser when for some reason a navigation to a specific page is canceled.
When a navigation is canceled the URL of the specific page is provided to the navcancl.htm local resource after the # sign. For example: res://ieframe.dll/navcancl.htm#http://www.site.com.  The navcancl.htm page then generates a script in the Refresh the page. link in order to reload the provided site again when the user clicks on this link.
It is possible to inject a script in the provided link which will be executed when the user clicks on the Refresh the page. link.
Luckily, Internet Explorer now runs most of its local resources (including navcancl.htm) in Internet Zone, so this vulnerability cannot be exploited to conduct a remote code execution.

Unfortunately, there is also a design flaw in IE7. The browser automatically removes the URL path of the local resource and leaves only the provided URL. For example: when the user visits res://ieframe.dll/navcancl.htm#http://www.site.com, IE7 will show http://www.site.com in the address bar.

To perform a phishing attack, an attacker can create a specially crafted navcancl.htm local resource link with a script that will display a fake content of a trusted site (e.g. bank, paypal, MySpace).
When the victim will open the link that was sent by the attacker, a Navigation Canceled page will be displayed. The victim will think that there was an error in the site or some kind of a network error and will try to refresh the page. Once he will click on the Refresh the page. link, The attackers provided content (e.g. fake login page) will be displayed and the victim will think that hes within the trusted site, because the address bar shows the trusted sites URL.