Andrew,
I, just now, proposed a patch through issue tracker ( http://code.google.com/p/web2py/issues/detail?id=824) that should resolve the problems with IE7 noted by you. Moreover the auth_navbar is more compliant with bootstrap (check the image). I tested the new welcome layout replacing the default web2py bootstrap.min.css with some from bootswatch and it seems work good now.
<<attachment: 2012-05-28_211141.png>>
