Truth be told I no longer cross browser check extensively for ie 7 in the free templates. According to the W3C, ie7 is down to 1.1% of the browser share:
http://www.w3schools.com/browsers/browsers_explorer.asp
If you want the template to be absolutely perfect in ie7 you will probably find some things that need adjusting.
The .ie7 rule you have found does have a type and should be a .png. If you like you can create the .jpg version and use it instead.
Thanks,
Anne
Bookmarks