I was having problems with IE7 also, but found adding this to the css in tpl_modules_categories_tabs seemed to do the trick

Code:
#navCatTabsDropdown a 
{
	display:block;

}
I also had an issue with the menu appearing behind page elements, again only in IE7. I added "z-index:200" and "position:relative" to #navCatTabsDropdown ul, and "z-index:300" and "position:relative" to the parent element, (in my case #mainWrapper). Seems to have worked, looks good in all the browsers I have tested now. Hope that helps anyone else having IE7 problems.