Yeah, I see what you mean about IE now. The problem seems to be that IE can't tell whether the string is HTML or XML, and jQuery doesn't have a way to tell either. Mike Geary posted a parser that works for both that you can use to parse the string and pass that tree into jQuery.
http://groups.google.com/group/jquery-en/browse_frm/thread/95718c9aab2c7483/af37adcb54b816c3?lnk=gst&q=parsexml#af37adcb54b816c3
