Was tearing my hair out when container.contentHeight was always returning 0 on IE7, and therefore the scrollbar was never being drawn (as 0 is always less than the container height).
This line fixes it, within $.fn.scrollbar.contentHeight:
var height = wrapper.css({overflow:'hidden', zoom:'1'}).height();
(note the addition of the 'zoom' parameter to force hasLayout on the wrapper element.