Despite what is said that the most secure setting is used, I have iexplore set to 1 in HKLM, but to 0 in HKCU. The latter was set to 0 when i checked the option to allow active content to run in files on my computer (IE options advanced tab).
Checking that option does change IE behaviour for the current user, so presumably the iexplore=0 setting in HKCU is not altogether overridden by the 1 in HKLM.
For example, one useful effect of checking that option I've found is if you have clicked through some links on a page at a site with ads blocked through HOSTS redirect entries, you only need to click back once, it runs through the ads URLs and returns to the page, instead of your having to click back several times or using the back button drop down box to bypass the ads URLs.
(I hope that is understandable...)
IE 7 RC1, XP home SP2 all updates.