Of course. Whatever is popular gets hacked. Even IE in Protected Mode has enough allowed low integrity locations that malware and hackers will discover ways to launch malicious code without having to write to the previous system locations. Malware may not be able to modify files in \Windows or \System32, but malware writers will find a way to exploit IE 7.
The hope is that it will be harder for malware writers to make successful attacks and be easier for Microsoft to patch. Some Microsoft critics think that IE is too complex and buggy to ever be secure. IE 7 will be tested heavily over the next few years to see if Microsoft can make a more secure browser than versions in the past.