Hi Erika,
Unfortunately this is a bug in IE7/8 which happens when an HTML link contains a block element. In IE7 it is avoidable by setting the blocks with float: none (this may break the menu rendering), but in IE8 there is currently no fix for this problem (of course you can use IE7 compatibility mode). If your skin is simple, you can use templates and avoid using block elements in the links.
Greetings,
Kamen Bundev
the Telerik team