The gallery seams to be working for me in IE8, the images load, and the first, previous, next, last links all move the image to the correct one. can you describe what you are experiencing?
one problem i can see is that your doctype tag is missing the URL to the DTD, try changing the doctype tag to:
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd">