In the IE7 stylesheet you have set the dropdown ul to be position:relative and it needs to be position:absolute. You need to remove the IE7 styles completely and use these:
#menu ul li ul {
position:absolute;
left:10px;
top:35px;
background:url(fake.gif);/* IE7 needs this or it won;t move over the gaps in the menu */
}
#menu ul li{position:relative}
#menu ul li ul li {width:200px}
#menu ul li:hover > ul {display: block;}
However, I would not usually use the display:none method of hiding menus as it is not very accessible. The best way is to move the menu offscreen and then just bring it on screen when hovered.
e.g.
#menu ul li ul{margin-left:-999em}
#menu ul li:hover ul{margin-left:0}
You don’t really need all those rules in the IE7 stylesheet either as you could instead use them for all browsers but that would require a few changes to the exisitng code and I was short of time