I'm helping a customer who has a problem with a flash app. The flash app uses an XMLSocket to connect to a service running on localhost. It works fine under firefox.
It uses the following line to setup the security policy:
System.security.loadPolicyFile("xmlsocket://localhost:10032");
Running the flash app under firefox, the service listening on port 10032 gets a connection with a <policy-file-request/>, responds to it, and it works well. Under IE, the service never gets the connection and the subsequent socket connection do not work.
EDIT: The problem turned out to be caused by embedding flash in a hidden div tag. In that case it refused to send out the policy file request. With the div not hidden it works. The answer about different versions of flash between FF and IE was right on, that's why it was working in FF (it was an older version). The newer version didn't like the hidden DIV tag.