If you're in the midst of a website redesign or are just coming off of one, I'm curious to know, did you decide to support IE7? And if anyone in the community here has any general thoughts on this, I'd be happy to hear them too. Thanks!
Drop it like a hot rock. That is, make sure all content is accessible, but forget about trying to make all the new bells and whistles work.
I like Google's policy, which I try to follow: fully support the current and previous major versions of each browser. http://support.google.com/a/bin/answer.py?hl=en&answer=33864
The only trick I see coming up is with IE 8. Under this policy, when IE 10 is released, we should theoretically only fully support 10 and 9, but Win XP users will be stuck on IE 8. And there are still a lot of XP users out there. So...we'll probably have to keep a close eye on IE 8 for a while until most people transition to Win 7.
Ultimately "support" exists on a spectrum, and you have to judge where on the spectrum you'll treat each browser based on your own analytics.
Based upon your scenario I would observe the available analytics to see what your audience is using. Analytics may reveal that you have a large audience using Windows XP and Internet Explorer 7. I would rely on the front end engineer to deliver a design that utilizes progressive enhancement. RESS will allow your design to respond based upon the user's browser.
The amount of time invested into supporting Internet Explorer and its versions (Browser Market Pollution) should be based upon how much traffic is currently generated from users of this browser. The development cost may quickly out weigh the profit earned from that user base.
Thanks, Riley and Erik! Greatly appreciate your insight.