When uploading an html file and filling the policy location on the Moodle Amdin Settings, policy.php page shows itself in a nested fashion in the iframe where the uploaded html should appear. To reproduce:
1. create a html file, either ISO8559-1 or UTF8 encoded, either using strict or loose DTD.
2. upload the file and fill the policy admin setting
3. logoff and manually create a new account
4. after receiving the email confirmation, click on the link to confirm the new account
5. look at the policy.php page, nesting istelf in the IFRAME.

The problem appears both on IE7 and Firefox 1.5. Apparently in a random fashion, the problem may not appear, so to fully troubleshoot the problem please try again if the page displays correclty.