It'e not a z-index issue as such although it does play a part; it's the filter you've used for IE to mimic a linear gradient which stops any content escaping from the header.
There is no fix apart from using a background image for ie instead of the filter.
Although you could remove the filter from the positioned element to an inner element instead which has no positioning applied and I belive that would work although I haven't tested it yet.
If you switch the filter off the menu appears.
Using the IE filters is always fraught with danger and I advise against using them for things like linear gradients unless its on small self contained elements.