I'm not entirely sure what you mean with pixelated text, as I do see some kind of "dead pixels" in IE7, but no text in them. Anyway, those dead pixels are probably caused by the issue described in this post (taken from
http://forum.jquery.com/topic/ie-dead-pixels-when-fading-images):
"The problem is due to colour #02050a which appears as transparent in IE when fading images.
Google search for #02050a and you'll find a lot of people with the same problem.
One solution is to edit the images and replace all pixels of colour #02050a with #02050b (for example).
This bug happens with png and jpg, but more often in jpg because of compression, and it is a lossy format. This means that even if your original image does not contain #02050a, it may do after saving it as a jpg. png files are lossless so the colours will stay exactly as you they are.. but larger file sizes."