IE has a bug which makes it read the whitespace in your code and insert gaps in your formatted lists. Adding margin: 0, padding: 0 will not solve this.
One solution is to remove all of the white space in your list HTML but this makes it unreadable and harder to update. An alternative (and better IMO) solution is this little piece of CSS hackery:
Code:
/* Fix IE list spacing. Hide from IE Mac \*/
* html ul li { float: left; }
* html ul li a { height: 1%;