I had the same issue with a Flash movie with an z-index of 100 that covered a drop down menu. Apparently in IE all Active content on a page will always rise to the top, so to speak, including Flash, certain form elements, Java applets, and Active X controls. This means that each of these will poke through layers, and ignore the z-index of other elements.
I found a solution for my Flash problem, I suggest you Google javascript issues with drop down menus. Failing that, use Flash for your slideshow and use this work around
http://kb2.adobe.com/cps/142/tn_14201.html