Expected results: the list-item-image should be rendered first of all. The baseline of the text inside the bright green bordered list-item should appear at the same height inside the list-item in both cases.
Reference: vertical-align must only apply to inline-level and to "table-cell" elements. Vertical-align is not inherited. CSS 2.1, Section 10.8.1, vertical-align
Firefox 220.127.116.11, Opera 9.23, Opera 9.50a1, Safari 3.0.3, Seamonkey 2.0a1pre, Konqueror 3.5, Seamonkey 1.x, K-meleon 1.x, Galeon 2, Epiphany 2, NS 7.0, NS 7.1, NS 7.2 all pass this test.
Update: this bug has been FIXED in Internet Explorer 8 beta 2 (build 6001.18241) released on August 28th 2008. Otherwise, Internet Explorer 8 beta 2 PASSES this specific and particular testcase.