I'm pretty sure that the image is ok. I made a test page with a background image, used the same image and published it. It shows up fine in IE.
http://www.aapossolutions.com/xhtml/test.html
This shows the same .png image with the same background and it shows up fine in IE. So i'm obviously doing something wrong in my default.css or in my page html. I just can't put my finger on it. I'm trying everything I can think of.