It appears that IE7 only shows the focus outline for focusable elements after the tab key has been pressed at least once. So clicking on a link for example, doesn't show a focus outline, but after you've pressed the tab key and then clicked on the link, then the focus outline on the link is showed. Maybe Firefox should do the same?
It also appears as if IE7 resets the "show outline" state every time a different window is focused. This reset also occurs if I change the window focus using the keyboard only.
The dotted outline is always handy when you want to see the last clicked link on sites without marked visited links e.g. www.nu.nl.
Yeah, Ria is right. When you click back in IE7, the last link you clicked upon has still the active state, so you know what link you clicked last upon in IE7, too. If we want this changed, then we need to make sure there is still a visual way to know what link was clicked upon when going back.