I have found the offending line of code, in the scripts/protoutil.js file provided.
Line 8 calls for the soundcontroller.swf
It should read like this:
//* scripts/protoutil.js *//
8 var url=__cc_urlbase + "soundcontroller.swf";
Because IE7 doesn't fire the onload event if parts of the page are not available - such as a 404 error for the above.
This has only come to light because I moved the chat installation to a different folder than 'default' ... which *should* have been alright to do but turns out it wasn't.
I hardly expected to have to debug a low level script include just to get the chat interface to be visible in IE7!
So - I'm left with the disconnect/reconnect issue I raised some time ago. Your assistance with that would still be very much appreciated !