It would help to know what if any messages you get when attempting to update or when IE7 closes. Check the event logs, too.
This could also be caused by malware. What if any scans for malware have you done?
Below are two good programs to check for malware. If they find something they can't remove post a log per instructions in the third link.
Install Super Antispyware. Run it in safe mode. Allow it to quarantine whatever it finds.
http://www.superantispyware.com/Run the online scan for Bit Defender in normal mode. Allow it to quarantine whatever it finds.
http://www.bitdefender.com/scan8/ie.html--------------------------------------------------------------------------------
Post a Hijack This log in the Hijack This Forum by following the directions in the link below if the programs above have not removed ALL malware. DO NOT post the log in this forum.
http://www.bleepingcomputer.com/forums/topic34773.html --------------------------------------------------------------------------------
How To start Windows in Safe Mode
http://www.bleepingcomputer.com/tutorials/tutorial61.html