Actually, setting it to version 1 broke IE 7 (works fine in FF).
So the workaround now is to user the older version 0 that works better for IE, but we now hex encode certain cookies that contain characters that version 0 does not allow.
Especially the quote:
"With version 0 cookies, values should not contain white space, brackets, parentheses, equals signs, commas, double quotes, slashes, question marks, at signs, colons and semicolons. The behavior of clients in response to empty values is undefined."