I think there's three issues here.
First off, you have a couple of clearing divs within the .navigation div. IE is giving these some height.
Start off by deleting these, and clear the floats by adding:
to .navigation instead.
Next, you have a couple of line breaks at the end of the "quick_find_header"" form. Get rid of these as well.
to your css to remove the gap after the image. Alternatives here are float:left on the img or vertical-align:bottom.
Give that a try.