Security consultant Georg Guninski has uncovered a new variant of an Active Scripting flaw which may lead to IE reading local files due to a bug in GetObject(). It is advised to read more.

Georgi Guninski security advisory #52, 2001 IE GetObject() problems Systems affected:
Patched IE 6.0, somewhat patched 5.5 Win2K Risk: High
Date: 1 January 2002 Legal Notice:
This Advisory is Copyright (c) 2001 Georgi Guninski.
You may distribute it unmodified.
You may not modify it and distribute it or distribute parts
of it without the author's written permission. Disclaimer:
The information in this advisory is believed to be true based on
experiments though it may be false.
The opinions expressed in this advisory and program are my own and
not of any company. The usual standard disclaimer applies,
especially the fact that Georgi Guninski is not liable for any damages
caused by direct or  indirect use of the information or functionality
provided by this advisory or program. Georgi Guninski bears no
responsibility for content or misuse of this advisory or program or
any derivatives thereof. Description: IE allows reading local files due to a bug in GetObject().
Reading local files may lead to executing arbitrary programs. Details: GetObject() has a bad security record - 
check http://www.guninski.com/browsers.html
The new bug is quite similar to:
http://www.guninski.com/getobject1-desc.html
the difference being:
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a=GetObject("http://"+location.host+"/../../../../../../test.txt","htmlfile");
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It is funny that directory traversal on a http: URL leads to reading local files. Workaround/Solution: Disable Active Scripting and never turn it on.
Better, do not use IE in hostile environments such as the internet.  Vendor status: Microsoft was notified on 11 December 2001.
They had 3 weeks to produce a patch but didn't. Regards,
Georgi Guninski
Guninski.com