Below is an image of the problem.
I've tried correcting the folder permissions to 755, i've tried setting exact paths, i've tried removing all of my styles and nothing works.
Background png images seem to load fine.
There are some flash elements on the page (top and side nav)
Any help would be much appreciated. Thanks in advance.
Are you sure there isn't some script applying the png fix for IE6 to IE7 accidentally? In this case it would be inserting an images/blank.gif file to make the area "clickable" in certain cases and compensate for lack of png. Though it shouldn't target IE7 since it natively supports it.
You can probably use the Developer Tools or search for any "blank.gif" references in the file(s) you're using and just throw it up there or somehow disable the png fixing thing.