There appears to be something somewhere removing the highlighting by interacting solely with the GridView. I guess this implies something internal to the GridView itself.
I fixed a problem in IE7 with a customized version of the ColumnTreePanel recently. The problem sounds similar to yours so I will describe it to see if it helps you.
The problem was that row highlighting stopped working for the last child for every node of the tree. When you clicked the row, nothing would be highlighted, but the control did consider the item to be selected. It was just that the visual indication of the selection wasn't working.
The highlight is done using a CSS style on the div that wraps the whole row. Using Firebug I could verify that the CSS style was added exactly like the other rows and the CSS style precedence was resolving the same as the other rows. So it appeared to be a CSS bug within IE. By accident I discovered that applying the CSS style directly to the divs for each column in the row worked, so that became the work around.
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