Next time I should hit Google a lot harder, and also remember who my
CSS friends are!

I have just found this handy tip on Andy Budd's site >== 
http://www.andybudd.com/archives/2003/12/css_crib_sheet_1_gaps_between_vertical_nav_elements_in_ie5/

Setting the containing LI to "display: inline" has fixed the problem.
I'm still curious about why this only matters with a font-declaration,
but I have long since learnt that IE's ways are mysterious indeed!
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