Made a new discovery, although I'm still not sure what the solution is...
I created a test page at test2.php and if you use IE Tester to view it you'll easily see what is happening. I moved the horizontal navigation up just a bit from it's 'normal' location at the bottom of the header.
Now, if you mouse over any dropdown item that is within the 'bounds' of the header div, everything is ok... but as soon as you mouse over a menu item that is outside of the header div, the menu disappears!!
I have the Menu Writer menu within an absolutely positioned div that is then contained within a relatively positioned header div... is there some weird IE7 bug rendering bug that doesn't like this?? And why does it work on some IE7 machines, and not others??
Anyone have any ideas on a solution??