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More info from the web:
China Internet Network Information Center
UPDATED: 16:41, December 30, 2005
SUBJECT: Microsoft IE 7 to support Chinese domain names

Internet users will be able to access a website simply by inputting the site's Chinese domain name in their IE 7 next year. Microsoft's IE 7 which is expected to be launched in 2006 will directly support Chinese domain names, which will give strong boost to the application of Chinese domain names, China Internet Network Information Center confirmed.

Microsoft is to enhance the security performances of IE 7, which supports Internationalized Domain Names (IDN), in a bid to protect users from phishing fraud and attacks.

Guidelines for Internationalized Domain Names Registration and Administration for Chinese, Japanese, and Korean, formulated by CNNIC in 2004 has been recognized and distributed by Internet Engineering Task Force (IETF). Chinese domain names, therefore, have become international standards and a component of the international domain name system. Therefore IE 7 that supports internationalized domain names will support Chinese domain names too.

Text from the People's Daily Online