I've opened the C9 RSS feed in IE7 (http://channel9.msdn.com/rss.apsx) and I got a page with a link to subscribe to the feed in IE7's RSS reader. The document was served with Content-type text/xml and the same worked with another dynamically generated feed, too.

Saving the xml file locally and opening it in IE7 did not display the special feed page.

So I guess, it only works if the RSS xml file is opened via http (and not locally or from a network drive) and the Content-type header must be set to text/xml to show up the feed subscribe page.