The EU is understandably wary about Microsoft proposals

The EU's media player action was a complete failure since no one would buy the WMP-free version if there was no discount involved, but it had the benefit of exposing the EC to Microsoft's deviousness. They are not going to be taken for a ride again on the much more meaningful topic of web browser choice and market distortion by Microsoft.

The issue with the proposed IE-free Windows 7 is that Microsoft would likely include some mechanism like an automatic download feature to make it easy to add it back. This is just loophole thinking - whether IE code is actually included or not in the install CD or on a network update server is irrelevant, the EU's beef with Microsoft is the making of IE a default through privileged access to Microsoft's Windows distribution channel, including Windows Update.