Demo: http://jsfiddle.net/NNbLN/
You can probably see the issue I'm having right away from the demo above. How do I stop the blue background getting applied to the :after element. In the demo I'm using colours but for production I'm using images, just incase that make any difference.
Move
padding: 0 10px;
from li to li:after and addbackground: white
to li:after.See: http://jsfiddle.net/neo108/cv6bC/4/