This problem has been bugging me for so long ever since I have my IE upgraded to version 7. Every time when I tried to reply or compose an email through OWA, the **Red X** was shown in the mail body and prevented me from typing in anything. I had to log in remotely to our terminal server if I need to reply an email at home, which is kind very annoying. I could download and install the S/MIME Control from OWA server option page and make the Red X to go away but the browser crashed every time I sent the message.
The problem is due to the change that disables the ActiveX DHTML Editor in IE 7, which requires a hotfix to be applied on Exchange server in order to get the problem completely fixed. Be noticed that you will have to have Exchange Service Pack 2 installed prior to install this hotfix. You don't need to restart your server after the hotfix is installed but the Exchange Information Store service has to be restarted. I did both on our office's Exchange server and OWA is running way better now. The Red X is now long gone.
Microsoft KB911829 that explains what happens in detail
Download Hotfix right here