Can Jason come back in on this one please?
For me this is testing fine on Firefox, Safari and IE8 (Vista). It is failing in IE7, which is very quirky when it comes to z-indexes.
I have tried many combos including setting the position values for the z-index properties, but am still getting a problem in IE7.
I think we need Jason back in on this.
The only thing I would suggest is to not have the first and second level menus overlapping at all, thus negating the need for a fix.