We were able to reproduce this problem. Our initial investigation indicates that something is misconfiguring the Tablet OS by turning off support for advanced text insertion into all applications. This is completely unsupported on a Tablet PC and we're working to track down how this setting got turned off. In the meantime, I'd like to confirm that this is the entire cause of the problem you are seeing.
Please can you check this setting:
Control Panel -> Regional and Languages Options -> Languages -> Details -> Advanced -> "Extend support of advanced text services to all programs"
This checkbox should always be checked on a Tablet PC. If it's not, please try checking it, rebooting and then see if the problem in IE7 evaporates.
Thanks, Adrian.