IE7 introduces System-Wide Cleartype. That means, installing IE7 will change IE's font to Cleartype (a mode supposedly making fonts clearer on XP) as well as any other components that use IE, such as System Restore, Windows Media Player and Help. Depending on your monitor size, resolution or colour depth this will cause fuzz.

However, in IE options you should be able to turn off cleartype, which will make IE and IE components fonts look normal again.

I hated it when they dumped the MS Sans Serif Font for Tahoma, but making it cleartype was too far!

Hope it helps