I recently went live with our new home page, after heavily testing it in each of IE9\'s browser and document modes (not just compatibility mode, but actual IE7 and IE8
First: always test on the actual browser. If we're talking about ie, use a virtual machine to test it. Never rely on "compatibility modes", "ies4linux", "ies4mac", "just use wine" and such. I've had a lot, but a LOT of headaches when not using virtual machines (you can use snapshots on your virtual machines - each snapshot is a browser version. This way you can have only one image but with multiple browsers).
Second: do this problem happens even if you remove that slideshow section from your script.js? Did you check if, after removing that section and reloading your page if it isn't a cached version of the old script.js? Sometimes a cached version is the source of all problems.
A little hack to fool your browser into not caching script.js is to add, when calling script.js from your markup, an arbitrary number (script.js?v=100 for example, and for each modification you do with your js, you modify this number. You can check SO's source, it uses a similar approach in some sections).
Third: try to do, before the "negation" in your script:
alert($.browser.msie);
alert($.browser.version);
alert($.browser.msie && $.browser.version <= 7.0);
...and see if ie alerts something or if it raises an exception. Sometimes ie will try to interpret your javascript, and raise an unknown exception for no reason whatsoever: if you don't catch it in a try/catch block everything will break from that point to the end of the script.
I know, it's a trial-and-error approach, but we have to isolate everything and try to understand exactly what's causing the error. If needed, repeat the third advice along the slideshow section.