Well No, i havn't had any problems, but i did with IE6...
I removied IE5 from my system, and wanted IE6. So i kept downloading it, and it wasn't installing. I gave up in the end, and one day looked at the file i downloaded, it was an update? Maybe its the same problem, you're getting the IE7 update and not full app?
I would have thought this was harder now as MS stuff is normally all automated and checks to see what you have and need before install and download but i am not sure...
I didnt have Mozzila, but i has FireFox, which is more or less the samething, so i doubt thats an issue...
Or, i am pretty sure IE7 checks all the Windows reg info, so if your using a none genuine or some corp and oem versions of Windows then it might be failing as it cant authenticate your system? Some corp and oem only support CD or vendor installations of some stuff. I had an IBM laptop that could only be updated by update CD's and would not allow me to connect to live update and download. It was a college laptop, and that was some thing they had with licensing ?? cant remember the whole story, just know it frustrated me...
failing all that pretty useless advice, i think you can probibaly find a rouge site with the whole offline package installer...