FULL PRODUCT VERSION :
java version "1.5.0_05"
Java(TM) 2 Runtime Environment, Standard Edition (build 1.5.0_05-b05)
Java HotSpot(TM) Client VM (build 1.5.0_05-b05, mixed mode, sharing)

A DESCRIPTION OF THE PROBLEM :
If a JLabel is added to an JPopupMenu no action event will be created if the menu frame overlaps the applet frame. This appears only in Internet Explorer not in test enviroment such as applet viewer or JBuilder.

STEPS TO FOLLOW TO REPRODUCE THE PROBLEM :
See example. Press right mouse button. A popup menu appears. Select an item and see in console for output. If the popup menu is completly inside the applet window the selected command is written in console (an action event was created). If the JPopupMenu overlaps the border of the applet window, no action event is created.

EXPECTED VERSUS ACTUAL BEHAVIOR :
EXPECTED -
After selection of an menu item, an action event should be created.
ACTUAL -
The JPopupMenu does not create an Action Event.

REPRODUCIBILITY :
This bug can be reproduced always.

---------- BEGIN SOURCE ----------
import javax.swing.*;
import javax.swing.event.*;
import java.awt.*;
import java.awt.event.*;

public class TreeApplet extends JApplet implements ActionListener
{

    protected PopupMenuListener popupMenuListener;
    private JPopupMenu popup0; // popup menus for action at tree nodes

    public void init() {

        JPanel panel = new JPanel();
        panel.setBackground(Color.red);
        getContentPane().add(panel, BorderLayout.CENTER);

        //Create the popup menu
        popup0 = new JPopupMenu();

        // The next two line are responsible for the bug!!!
        JLabel label = new JLabel("Configure");
        popup0.add(label);
        // End of buggy lines

        JMenuItem menuItem = new JMenuItem("Help");
        menuItem.addActionListener(this);
        popup0.add(menuItem);
        menuItem = new JMenuItem("About ...");
        menuItem.addActionListener(this);
        popup0.add(menuItem);

        //Add listener to components that can bring up popup menus.
        MouseListener popupListener = new PopupListener();
        panel.addMouseListener(popupListener);
    }
    public void actionPerformed(ActionEvent event)
    {

       String cmd = event.getActionCommand();
       System.out.println("cmd="+cmd);
    }


    /**
     * Handles the popup show event.
     * Dependent on the event a certain popup menu will be opened.
     */
    private class PopupListener extends MouseAdapter
    {
       public void mousePressed(MouseEvent e)
       {
         maybeShowPopup(e);
       }
       public void mouseReleased(MouseEvent e)
       {
         maybeShowPopup(e);
       }

       private void maybeShowPopup(MouseEvent e)
       {
                // if a child window is open no action is allowed
                //if ( treeApplet.currentChildWindow!=null ) return;

                if (e.isPopupTrigger())
                {
                   showPopupMenu(e.getComponent(), e.getX(), e.getY());
                }
       }
    }

    private void showPopupMenu(Component comp, int px, int py)
    {
        popup0.show(comp, px, py);
        popup0.requestFocus();
    }
}

---------- END SOURCE ----------

CUSTOMER SUBMITTED WORKAROUND :
No if you want use JLabel in the menus. You can use disabled JMenuItems but these item can be selected, but JLabel not.