I recently found out (unfortunately) that disabling an option with the disabled attribute does not work in IE 7.  Odd.  Here is my workaround using JQuery, it will gray out and disallow selection of all options with a disabled attribute.

   $(document).ready(function() {
     $('option[disabled]').css({'color': '#cccccc'});
     $('select').change(function() {
       if(this.options[this.selectedIndex].disabled) {
         if(this.options.length == 0) {
           this.selectedIndex = -1;
         } else {
           this.selectedIndex--;
         }
         $(this).trigger('change');
       }
     });
     $('select').each(function(it) {
       if(this.options[this.selectedIndex].disabled)
         this.onchange();
     });
   });     

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