This is really just a repeat of the permissions issue I had a while back when I relocated Documents, Desktop, Downloads, and Temp, but it's worth repeating: after scouring the interwebs for help on this I've realized that most people don't know about the fix...

And what happens if you only reset the permissions on three out of the four directories in question after installing Vista on a new machine...

This is actually applicable to all versions of IE7, but since XP users typically run as Administrators, not many people would notice it there... XP users that run as Limited and Vista users would certainly notice it, though. You see, IE7 is configured to run in a protected state: it's not allowed to interact with most of the OS for security reasons. Because of this, when you attempt to create a shortcut by grabbing the small icon next to a URL in the address bar and drag it to a folder - even to the Links folder! - it will show up as a blank shortcut. When you click on it you'll be told:

The target "" of this Internet Shortcut is not valid. Go to the Internet Shortcut property sheet and make sure the target is correct.

Upon inspection you'll find that the .URL file was created properly but when you look at the Properties sheet, you'll notice the URL itself is missing from the file. This means that you have rights to put the .URL file at this location but something else went wrong.

In my case, I set my permissions correctly on Desktop, Documents, and Downloads. This meant that I could drag and drop the small icon, put the .URL file most anywhere, and it would work... but the URL itself wasn't getting into the .URL file itself.

In my case, I missed the permissions on the TEMP folder.

Once I " target="_blank">set the permissions on the TEMP folder to match Desktop, Documents, and Downloads (which are the same as my top level User directory) I was able to drag and drop the small icon from the address bar in IE7 to the desktop again.

Just another reminder to myself - I spent almost 30 minutes trying to figure out why this wasn't working on my new machine when I had set it up [almost] exactly like my old one!