Hmm strange. I can confirm the enlarged images don't show in IE8 even on the DD demo page, but only online. If I run it offline it does work. Just a stab, but what happens if you remove the code in red below from the script in the HEAD section of your page:
Code:
<script type="text/javascript" src="thumbnailviewer2.js" defer="defer">
/***********************************************
* Image Thumbnail Viewer II script- © Dynamic Drive DHTML code library (www.dynamicdrive.com)
* Visit http://www.dynamicDrive.com for hundreds of DHTML scripts
* This notice must stay intact for legal use
***********************************************/
</script>
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