Update: Google contacted us to clarify that this issue is present only until a user restarts the browser, and it only affects a small number of users.
"Specifically it affects those using Google Toolbar versions 6.3.911.1819 through 6.4.1311.42 in Internet Explorer, with enhanced features enabled, who chose to disable Toolbar without uninstalling it. Once the user restarts the browser, the issue is no longer present. A fix that doesn't require a browser restart is now available on www.google.com/toolbar and in an automatic update to Google Toolbar that we are starting today," Google spokesperson said.
Security expert Ben Edelman has done some digging, and he's discovered that Google toolbar keeps tracking your browsing even after you disable that option. He's also noticed that Google makes it easier to enable than disable certain tracking features, all of which make the Google toolbar a somewhat shady affair if you're concerned about your privacy.
A very detailed explanation can be found on Edelman's blog. In addition to the problems named above, he also quotes some bits from Google Toolbar’s installation and privacy disclosures, which seem to have worsened over time.