First, have a look at this Adobe article on Macromedia FlashPaper 2
Note that Java Script must be enabled to view a Flash movie.
Open IE7 and click on Tools/ Manage Add-ons/ Enable or Disable Add-ons, and disable all Add-ons currently loaded in Internet Explorer.
Once you've disabled all currently loaded Add-ons, test your Flash and see if it works. If it works then you can safely assume there is a conflict between one of your currently loaded Add-ons and the Flash Player Plug-in.
If Flash still doesn't work even after you disabled all currently loaded Add-ons, then I would consider Uninstalling IE7, (see if everything works in IE6
) and Reinstalling it to see if that resolves the issue.