I have the same issue with the new beta 2 of IE7.
I found this on Neowin.net:
Yes, IE7 beta 2 has caused strange effects in cookies folder and temp internet files, index.dat files, etc.
This is what I have found:
After installing IE 7 beta 2 the contents of my cookies folder, C:\Documents and Settings\user name\Cookies no longer contains the cookies as .txt files. Instead it contains exactly the same files as my temporary internet files folder C:\Documents and Settings\user name\Local Settings\Temporary Internet Files. That is to say, it contains the cookies in the form 'name', 'internet address' etc. and also contains all the downloaded files of the pages visited.
Furthermore the same contents are now found in the following folders:
C:\Documents and Settings\LocalService\Cookies
C:\Documents and Settings\LocalService\Local Settings\Temporary Internet Files\Content.IE5
C:\Documents and Settings\NetworkService\Cookies
C:\Documents and Settings\NetworkService\Local Settings\Temporary Internet Files
If I use IE tools/internet options/ browsing history delete/delete temporary internet files to clear temporay internet files including all offline contents, then all the above mentioned folders contain the cookie files, in the way they previously appeared in my temporary internet files folder (name, internet address, etc.).
Another oddity: if I copy a cookie item from the cookies folder to, say, C:\temp, the copy does appear as the cookie .txt file. Having found this trick, I can at least still inspect the contents of the cookies in Notepad, but it is a nuisance to have to copy them over.
Another change relates to the index.dat files, specifically that for temporary internet files. Using XP's disk cleanup applet, if I highlighted temporary internet files, clicked view files, the contents of C:\Documents and Settings\user name\Local Settings\Temporary Internet Files\Content.IE5 were displayed, including the index.dat file. I used his method to see how large that file was, and when it had grown very large, I used Index.dat suite or CCleaner to clear the index.dat file on restart back to its 'virgin' 32KB size. That did not affect the saved cookies.
After installing IE7 beta 2 preview, the index.dat file is no longer visible in the Content.IE5 folder, but index.dat suite and CCleaner find it and report its size. However, if I clear it on restart all the saved cookies are also deleted. This is particularly annoying as I then have to log in to each forum again.
I posted this on a forum and at least one other user confirmed he observed the same effects, so I don't think it is anything peculiar with my system.
I don't know if these changes are by design or a bug in IE7 beta 2 preview, but in any case the changed behaviour is most unwelcome.