Ok, so here is something back for the group for all the help I got (special thanks to Paul O'B).
Over the past few weeks I have been racking my brains on one CSS fault of IE - you cannot specify BOTTOM property when you specified TOP, and similarly you cannot specify RIGHT once you specified LEFT. Given that in standard-compliant box model the padding is added on top of your width or height, you are effectively unable to style an object that takes up the full width and/or height of its parent EXCEPT for a gap on each side. This is only problematic in IE 6 and below, since in IE 7 as well as FF and other "well-behaved" browsers you can easily set top / bottom / left / right properties, and the browser then stretches the width / height accordingly.
Since IE7 has fixed this bug and since standard-compliant styling is the right thing to do, I chose the second.
Instructions for use:
1. Download the script from http://erideon.net/fileshare/iefix.js
2. Include following line into your <header> section
That's it. It's tested, but feel free to let me know if you spot anything weird.