Ah, the joys of IE in general and the perils of quirks mode rendering. When I load your page into IE, it defaults to quirks mode. When I force standards compliance, using the developer tools of IE8, the spill you want and expect occurs. Your doctype spec looks good, but your page does not validate by your declared doctype. Try fixing your errors, and see whether that leads IE to use standards mode.
Added:
This problem was characteristic of IE6. It was supposed to repaired as of IE7.
In IE6, there was a "stupid IE trick" that fixed the issue. The outer container, the one being stretched is formally declared to be overflow:hidden, and the direct child that was causing the stretching is declared to be position:relative without a top or left.
However, I note again that when I force IE to use standards mode, the proper, expected rendering happens. I still think you need to determine why IE7 and -8 are falling into quirks mode, even tho' you've declared a strong doctype.
Correction:
Not enough coffee moment....outer container should have been "hidden" not "visible."