This is because you had set in your CSS the img element to display as block level element img:display:block; 
...This is what ddadmin, had seen and we had experience which bring confusion 
...The fix is not really on the script, but on the CSS, remove all the td img{display:block;} declaration and everything will work out fine 
...This is how it will look like. (Don't worry, i've commented my ammendments)
Code:
body {
font-family: "Times New Roman", Times, serif;
}
#nav, #nav ul { /* all lists */
padding: 0;
margin: 0;
list-style: none;
float : left;
width : 11em;
border-top-style: none;
border-right-style: none;
border-bottom-style: none;
border-left-style: none;
background-color: #faf8df;
color: #003c79;
height: auto;
}
#left {
background-color: #faf8df;
float: left;
width: 11em;
height: auto;
border-top-style: none;
border-right-style: none;
border-bottom-style: none;
border-left-style: none;
margin: auto;
position:relative;
z-index:10000;
}
#holder {
width: 814px;
border: thin solid #000000;
background-color: #FFFFFF;
margin-right: auto;
margin-left: auto;
}
#kekelogo {
font-size: 100%;
background-color: #082707;
clear: none;
width: 814px;
}
#header {
width: 800px;
border-bottom-width: thin;
border-top-style: none;
border-right-style: none;
border-bottom-style: none;
border-left-style: none;
}
#nav li { /* all list items */
position : relative;
float : left;
line-height : 1.25em;
margin-bottom : -1px;
width: 11em;
background-color: #faf8df;
color: #003c79;
}
#nav li ul { /* second-level lists */
position : absolute;
left: -999em;
margin-left : 11.05em;
margin-top : -1.35em;
background-color: #faf8df;
color: #003c79;
}
#nav li ul ul { /* third-and-above-level lists */
left: -999em;
color: #faf8df;
background-color: #003c79;
}
#nav li a {
width: 11em;
w\idth : 10em;
display : block;
font-weight : bold;
text-decoration : none;
background-color: #faf8df;
color: #003c79;
border : 1px solid black;
padding : 0 0.5em;
}
#nav li a:hover {
color: #faf8df;
background-color: #003c79;
}
#nav li:hover ul ul, #nav li:hover ul ul ul, #nav li.sfhover ul ul, #nav li.sfhover ul ul ul {
left: -999em;
background-color: #faf8df;
color: #003c79;
}
#nav li:hover ul, #nav li li:hover ul, #nav li li li:hover ul, #nav li.sfhover ul, #nav li li.sfhover ul, #nav li li li.sfhover ul { /* lists nested under hovered list items */
left: auto;
background-color: #faf8df;
color: #003c79;
}
#content {
margin-left : 12em;
width: 375px;
font-family: "Times New Roman", Times, serif;
}
#floatbox {
font-size: small;
margin: 5px;
padding: 1px;
float: right;
width: 125px;
border: thin solid #666666;
background-color: #e2e59e;
display: block;
color: #003c79;
}
#footer {
font-size: 80%;
text-align: right;
clear: none;
width: 100%;
}
#Layer1 {
position:absolute;
width:475px;
height:453px;
z-index:1;
left: 409px;
top: 186px;
}
.style1 {color: #E7CA54}
/*******************rangana editeed this part
td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}td img {display: block;}
*************end of rangana's edition***************/
.h2 {
font-size: large;
font-weight: bolder;
text-transform: capitalize;
color: 003c79;
}
a:link {
color: #003c79;
text-decoration: none;
}
a:visited {
text-decoration: none;
color: 009878;
}
a:hover {
text-decoration: none;
color: #009878;
}
a:active {
text-decoration: none;
}
h2 {
font-size: large;
color: #00755C;
}
h5 {
color: #003c79;
}
h1 {
font-size: x-large;
color: #003C79;
}
h1,h2,h3,h4,h5,h6 {
font-family: Arial, Helvetica, sans-serif;
}
Hope that helps
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