A: 

I don't know why this worked, but it did. Adding the line "opacity: 1.0" made the animation work in ie8. Something to do with combining microsoft css filters.

 //Nav hover
            $('#nav li:not(.current)').hover(function() {
                var bgColor = $(this).css('color');
                $(this).animate({
                    backgroundColor: bgColor,
                    opacity: 1.0,
                    marginRight: '10px'
                }, 200);
            }, function() {
                $(this).animate({
                    backgroundColor: '#000',
                    opacity: 1.0,
                    marginRight: '0px'
                }, 200);
            });
j-man86