My preliminary investigation suggests that this is not an Emacs bug. I believe the behavior you have described is a feature of Windows 7. I followed your steps in Internet Explorer, Mozilla Firefox, and TextPad on Windows 7 and all three applications behave the same way. When I drag the windows up and then immediately back down, the window height changes in all three applications. What I believe is happening is that the drag up and immediately back down action is somehow being interpreted by Windows 7 as being equivalent to the restore command.