Finally decided to download the IE7 beta from MSDN. I am running it side-by-side with IE6 and I see some occasional error dialogs, but not sure if they are related to the fact that I switched it to run in local mode or if they are actually bugs.

BTW, to run IE7 in local mode --

1) Download and extract (using WinZip). Do not install.

2) Delete file shlwapi.dll

3) Create an empty text file IEXPLORE.exe.local