In previous versions of Windows, the Internet Time tab was not built-into the Date and Time applet,
but was added there by the Windows Time service. In Windows 7 I found weird things happening,
such as seeing the service running although it was set to Manual, or of seeing Internet Time displayed and time-sync done even when the service is disabled.
I'm starting to think that Windows 7 will start the service when time-sync is to be done,
no matter what is specified as its Startup type. I still don't know whether the Internet Time tab
is now built-in or is still being added there by the service on its first run.
It seems however likely to me that there is still some connection between the service
and the Internet Time tab, so that some corruption caused this mechanism to malfunction.
The Time service is defined in the registry at
HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\services\W32Time. In case that the problem is caused by registry corruption, I have posted this key's contents on pastebin for comparison. Do not import it blindly into the registry (or at least not before saving yours).
Otherwise, all I can suggest are general troubleshooting steps such as the System File Checker.