That makes no sense,
I'm not disputing what you say, but it's just strange that attempting to view a web page code then allows you to click links in a page to go to the next page.
Unless anyone else here has ideas, I would suggest your install of IE7 didn't go right. I would revert back to IE6, (Control Panel > Add/Remove Programs to uninstall IE7 returns you to IE6), then make sure your OS is squeaky clean of parasites, trojans etc, then try again.
That's all I can suggest at the moment.
After installing IE7: On websites most of the time I have to click View then Source in order to go to the next page or next item. A Notepad box flashes briefly & then I can continue. Why? How to avoid?