I have a CSS nested menu that works perfectly in IE 8 and firefox but in IE7 it produces a small gap between the elements.
this
It may be because of the spaces between the list items. You can either fix the problem by removing the spaces between the list items like this:
Or this:
Or if you want nicer-looking HTML, you can put comments between the list items:
There are also tricks to remove the spaces using CSS, as described here.