Putting the close button in the tab row is a good idea, I think. Not only does it use space more efficiently, but it is also compatible with what the user would expect.
There may be an overdraw issue when there are a lot of tabs, but Firefox has that bug too, and it is quite possible to cope with, really.
The middle-click thing is a brilliant idea, but has the problem that it is not obvious, so it should be available in addition, but not the default way to close a tab.
I've been using Firefox (and Firebird) for so long that I don't remember what Internet Explorer looks like, but it never occurred to me to use the middle button on a tab. Maybe I'd have known had I ever read the documentation, but honestly, who reads docs anyway.

A UI should be obvious to every user running the program for the first time. A red "x" in the tab row is pretty obvious.