Tested with O7.54 and O7.60p2 - "Item2" and "Item3" are
initially positioned too far down. There is a :hover style
associated with them that sets them to "visibility : visible" and
corrects the positioning - even though they're already visible!
If I place a paragraph before the div/ul the problem goes away. If I remove the right floating div it goes away too.
The green outline shows it's the ul that's incorrectly positioned.