How does IE7 define a "File Download"?

Our organization is currently using the IE7 security setting "File Download
- 
Disable" for the Internet zone. Unfortunately it does not allow pdf content

to display until we add a URL to the Trusted Sites list.

I would like to find a way for the this content to be able to be displayed 
so I'm wondering how (and where) does IE define what constitutes a "file 
download".

Obviously html content can download and display
So can .jpg, .gif, etc images
So can Flash content which is not even natively rendered by the browser but 
requires an add-on.

So what is different about the pdf format that will not let it display like 
this other content?

I've already configured acrobat to display content in the browser but that 
has no effect once the "File Download - Disable" setting is enforced.

Does anyone know how to allow pdf content to display under this security