Indeed. Also, a slightly more succinct fix for IE6/7 would be:

  function foo(element, a, b) {
    element.onclick = function() { /* uses a and b */ };
    element = null; // avoid memory leak
  }

The closure contains a reference to foo's activation object, not to its properties. As a consequence, you can clear out the element reference after the event handler has been defined and this will break the circular reference.

The above technique is also useful when creating anonymous functions for other purposes when element references happen to be lying around. Depending on how long these anonymous functions are kept alive and what you do with the elements in the meantime, this would normally lead to a memory leak (due to the dangling reference to the DOM element, rather than a circular reference as described in the article).

See http://jibbering.com/faq/notes/closures/ for a seriously nerdy deep-dive into closures in JavaScript.