Problem with applet in IE7

Had problems with loading a applet(that tries to connect using socket) in IE7 using JRE1.5. It used to work in IE6. Was getting the socketPermission error although the java.policy file in the user home had socketPermission for accept, connect, resolve. Then I added the same socketPermission entry in the java.policy file under the security folder of the JRE installed directory. It then worked. Thus, IE7 doesn't check the java.policy file present in the user home. Instead it checks the same present in the JRe installed directory. Bug or enhancement in IE7?