Your first mistake is that you are using IE instead of something much better, like Firefox. Firefox never has a problem opening pdfs inside of it.
Try right clicking and "open in new tab" or new window.
All browsers will have problems opening PDFs if the settings tell them to open PDFs in a separate window. I don't have IE7 so I can't tell you the exact place to look, but there will be a setting within IE somewhere telling it whether or not to open PDFs within the browser.