It is difficult to debug without having access to the files.
The issue seems to be between the div "sidebar" and the ul "level-0"
If you add text between those where does it appear? If it is off too, then it is likely that the problem is with your "sidebar" css or surrounding page, otherwise it may be something with the menu itself.
I see that you have "url(menu_ie.css)" as your background-image for a tags. That might have something to do with it.
it might something to do with the overall menu width for IE7... its hard to say