Actually what it does is show the page in IE 8 or IE 9 standards, depending upon the version of the browser. A real IE 7 and an IE 8 or 9 that the user forces into compatibility mode will still have the problem.
The reason it shows the page in the highest mode available for the IE browser being used is that once you do this:
It's too late to do this:
It has no effect, as the IE browser mode is already set once you open an IE specific content block. The other code, the blending transitions may or may not be needed. Probably not.
<meta http-equiv="X-UA-Compatible" content="IE=EmulateIE7">
But, if it works and you're happy with it, go with it. It will not fix IE 7. It will not even fix later IE if the user forces compatibility mode in their later IE browser. This can sometimes be set by default upon IE installation.
About the image, you could probably get away with just the color, I don't think anyone but you notices that line. If it is crucial you can use border and/or HR to substitute for it. Or you could add the color as a fall back for while the image loads:
Which would still be best as the first thing after the title and meta tags.
background: #193b2a url(images/back1.jpg);