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Outlook prevents you from actually clicking on the link until you activate the links by clicking on the grey warning bar (orange when highlighted) that turns up just above the email.
Once the link in the email is activated and clicked on, IE7 starts (if it's your default browser), and you go to the site and a warning appears with a pastel yellow background, next to the Web address at the top of the browser's toolbar, that this is a Suspicious Website. The Web address is given a pastel yellow background as well. From a user interface perspective, we feel that this is probably too subtle for a warning of this nature.
If you click on the box that says "Suspicious Website," you are given a more detailed explanation of what the problem could be, a help link to get more information, and another link to report the suspected phisher to Microsoft. Microsoft takes spamming and phishing very seriously and has deep legal pockets that it uses very liberally to shut down spammers and phishers.