Testcase:

<!DOCTYPE html>
<html>
        <head>
                <title>IE onlcick</title>
                <script type="text/javascript" src="http://code.jquery.com/
jquery-1.4rc1.js"></script>
                <script type="text/javascript">
                        $(function(){
                                $('.clickme').live('click', function() {
                                        // Live handler called.
                                        alert('test');
                                });
                        });

                        function testfunct(){
                                return false;
                        }
                </script>
        </head>
        <body>
                <a onclick="return testfunct();" href="/test">link</a>
                <div class="clickme">test2</div>
        </body>
</html>

if you click on link it shouldn't do something but it goes to "/test"
in FF and chrome it works

i think the problem is in 1.4rc.js starting in line 1221

if ( !handle ) {
                        eventHandle = function() {
                                // Handle the second event of a trigger and when
                                // an event is called after a page has unloaded
                                return typeof jQuery !== "undefined" && 
!jQuery.event.triggered ?
                                        jQuery.event.handle.apply( 
eventHandle.elem, arguments ) :
                                        undefined;
                        };

                        handle = jQuery.data( elem, "handle", eventHandle );
                }

the arguments object has a false (undefined) return value
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