How to remove background on a second level li
elements ?
Your li is inside the red li. Try to just set another color, for example
ul.navi > li > ul > li {
background: #fff;
}
Color: transparent will also not work here... Because when You've got color: transparent, it is transparent, and the "below" red is visible underneath it.
Good luck, hope it helps.
Updated: http://jsfiddle.net/zhrgyLrf/1/