Yes, a background image on the LI is no use, because the content of the LI cover it over. If you gave the LIs a height of, say, 44px, and removed the bg color on the UL, you would see the arrow, but that's not very practical.
Another option would be to use :before or :after on the LI (or <a>), put the arrow on it as a bg image, and position it absolutely at the bottom of the element. You'd just give the parent element position relative.
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