You are running into IE's z-index stacking order bug. Try setting a z-index of 1 on the parent container for your menu, and a higher z-index for the dropdown list.
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Web Goddess & Web Standards Evangelist :) - Tables Be Gone !!
Z-index won't work if your element isn't first set to position:relative or absolute. Set the UL for your menu to position: relative and it should be fine.
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Web Goddess & Web Standards Evangelist :) - Tables Be Gone !!