> One reason why there may be so many 'broken' servers with 
> bad/incorrect responses is here...basically it may have 
> been used in some places to work-around IE's hijacking of 
> small ( < 512 byte) 404 error pages.

That's right.. but this is indeed a bad solution. A 
slightly better one would be to ensure that 404 pages are 
at least 512 bytes-long. Or even to respond with a 3xx code 
(redirect) and a standard, UNIQUE, 404 page.

But to give 200 errorcodes in such cases is indeed a bad 
idea (especially for the loop problem)