min-height

CSS 2.1 Specification: The percentage is calculated with respect to the height of the generated box's containing block. If the height of the containing block is not specified explicitly (i.e., it depends on content height), and this element is not absolutely positioned, the percentage value is treated as '0' (for 'min-height')

It seems to me, that the expression this element refers to the containing block (black border) not the generated box (orange background).

Firefox2 applies min-height in both cases and does not require the generated box to be absolutely positioned.

IE7 requires the generated box to be absolutely positioned. MSDN does not mention absolute positioning, but refers to the specification.

MSDN: If the height of the containing block is not explicitly set, then the element has no minimum height and the minHeight property is interpreted as 0%.

Opera9 ignores min-height in both cases.