I could reprodcue this with FF and Safari browser as well. I am not sure this an issue or not, but with the current implemantation Users will always see only applocation version of dialog.

I checked the windows task manager and following java process are running.
Java.exe
jp2launcher.exe
jusched.exe

I could reproducethis issue on Vista and Win 7 both
FIU dialog with Auto Update.

1. Check preconditions
     * Install 6u18 and onwards release of JRE (Base JRE)
     * Verify the base JRE is installed properly.

2. Set up the UpdateServeltURL? in the registry.
[HKEY_LOCAL_MACHINE\SOFTWARE\JavaSoft\Java Update\Policy] "UpdateServletURL"=http://j2se.east.sun.com/arc/1.6.0_18/pit/2009-10-06.10_51/windows-i586/map.xml

3. Launch IE Browser which loads some applet. (http://www.babynamewizard.com/voyager).
4. Make sure Java Console is not displayed
5. Launch the jusched.exe, wait for 6-8 minutes till update balloon is shown in the system tray.
6. Clcik the update balloon and proceed with the installation.
         
Expected Behavior:
 * Verify Browser version of File In Use dialog is shown.
 * Verify only, IE showing up.

Actual Behavior:
 It showing Application version of dialog instead of Browser Version.

There are more iisues here.
1.) Vista and IE7
FIU showing full name with this along with the window title

2.) Win 7 and IE 8
After clciking on "Close Program ..." button 2-3 times it shows old style of FIU dialog.
Please see the attached image for more infos.

Sometime it shows all these entries in the FIU dialog.
Java.exe
jp2launcher.exe
jusched.exe