I'm having the problem in both IE 7 and IE 6. At first I assumed it must have been some modification I'd made to the template, but the problem is also present using the demo template in an unedited version of the original download. If you go here:
http://www.tinyqueen.com/udm4/udm4/template.html you can see it on the Home and the About links. If you move your cursor too far to the right, it loses its hover. On the site I'm using it on, this is happening on all of the links.