This begins life as an empty frame (i.e., with a URL of ""):

After 5 seconds, the frame will set its document.domain to stanford.edu. Notice the outer frame's document.domain is also changed in Firefox. You can also set the document.domain of the outer frame directly. Notice the inner frame's document.domain is also affected.

Conclusion: the two frames share a principal in Firefox. In IE7, they appear to have different principals.