IE7 Z-Index Layering Issues

I've isolated a little test case of IE7's z-index bug, but don't know how to fix it. I have been playing with z-index all day long.

What is wrong with z-index in IE7?

Test CSS:

input {
    border: 1px solid #000;
}

div {
    border: 1px solid #00f;
}

ul {
    border: 1px solid #f00;
    background-color: #f00;
    list-style-type: none;
    margin: 0;
    padding-left: 0;
    z-index: 1000;
}

li {
    color: #fff;
    list-style-type: none;
    padding-left: 0;
    margin-left: 0;
}

span.envelope {
    position: relative;
}

span.envelope ul {
    position: absolute;
    top: 20px;
    left: 0;
    width: 150px;
}

Test HTML:

<form>
  <label>Input #1:</label>
  <span id="envelope-1" class="envelope">
    <input name="my-input-1" id="my-input-1" />
      <ul>
        <li>item</li>
        <li>item</li>
        <li>item</li>
        <li>item</li>
      </ul>
  </span>
  <br><br>
  <label>Input #2:</label>
  <span id="envelope-2" class="envelope">
    <input name="my-input-2" id="my-input-2" />
  </span>
</form>