i have an isis bb with one of these and at first i thought it was a really crappy design as well. but it's not really.

if it's like mine, there's a lip on the adjustable cup that the tool mates with, rather than the splines found on most shimano bb's. because this lip does not bottom out against the frame (bb bottoms out against itself) the o ring simply covers the exposed threads on the adjustable cup outside of the bb shell. auspiciously protecting them from crap. i'm sure you can get away with not using the o ring, but it's there so why not.

once i got everything nice and tight (the shop really screwed it up) i've had no problems whatsoever with the bb.

edit: mine is similar to the 7700, not the 7710