IE 8 hangs when OBJECT tag is used to specify an applet
Steps to reproduce:
1. Uninstall all jre
2. Intstall jre 1.4.2_XX
3. Convert applet using "Standard (IE&Navigator) for Windows&Solaris only" template
4. Run C:\Progra~1\Intern~1\iexplore.exe "path_to_converted_applet"

IE hangs in most of cases.
This is the more general description:

On jre 1.4.2 and jre 1.5 IE8 hangs on <OBJECT> tag
if case the browser didn't receive any mouse button events or keyboard before the browser got to the point of interpreting (executing) <OBJECT> tag.

So the only situation when the bug reproduces is when html file containing <object> tag
is specified as a command line parameter while lunching IE:
iexplorer.exe file.html
In such a case there is no mouse button event or keyboard event between invocation of IE and <OBJECT> tag execution.