Hi trancehead
I sympathise! I am using the same drop-down menu (after a bit of re-styling) on my new website.
At a glance I'd say your CSS is OK. if we are being picky I would say lose the float: left function under the #menu and add left: 0px. I recall having issues with float when I was customising my menu.
I think it is to do with the csshover.htc because because it was set up so IE can support it
http://www.xs4all.nl/~peterned/csshover.html
but having said all of that, I have just opened it up in IE7 and its working fine for me. have you tried Ctrl and F5 a couple of times to refresh the page?
HTH. Re-post or PM me if I can help further.
Thanx