I found a solution here in a closed thread having to do with an oddity: situation where IE7 would not connect to a functioning internet connection but Firefox WOULD connect without a problem. The solution was to check "Internet Options" to determine if the "connect through proxy server" option is checked. If it is, un-check this box (presuming you don't use a proxy) and the problem is solved.
In my case, I'd snagged some Junkware while surfing, and spent the better part of an hour hammering it into the pavement. However, after rebooting I found that Firefox connected to the internet without a problem, but IE7 returned the "cannot connect" message. In addition, several tools I use (MalWare Bytes, for example) couldn't access the internet for updates. Stumped, I checked here and found the solution buried in a thread that's now closed. Apparently, the junkware checked the proxy server option as one of it's minor annoyances. Unchecking the box resolved the issue.
As a computer tech, I'm accustomed to dealing with malware and associated malfunctions. And, I try to remember to check the simple things first. In this case, I needed a reminder: check all relevant settings before firing up Hijack This or similar more potent diagnostic tools.