With the recent release of a preview of IE7 beta 2, there's been another slew of demands for "standalone IE", and much posturing on both sides about whether Microsoft can/should provide this.

I said to Molly Holzschlag of the Web Standards Project back in November 2005 that the "...best way of testing IE with multiple installs is using Virtual PC."  That is still the case.  I discussed a little bit in that interview how .local works, and why it is an unsupported scenario.  I also said we've known about the .local trick for a long time - even use it occasionally internally, but that we know exactly what the effects are.  We are not to my knowledge disabling this in any way in IE7, but that I can't guarantee it will work in the future either, and it may not have appropriate behavior anyway (because you're running "most" of IE6, or "most" of IE7). 

In short, I'm not telling you the ONLY way of testing multiple IEs on one machine is VPC.  It's the BEST way.  We are not going to officially support using .local to run multiple IEs on one machine, because it is potentially unstable.  IE is a collection of DLLs that are designed to work as parts of the operating system, and if you have a mismatched set it may cause problems.  As far as I personally am concerned, you can use this to test HTML rendering and switching out MSHTML.DLL, and "most" of the time it will work - but it's not the same as having a full set of new IE system DLLs installed.