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The good news is that I just got a call back from IBM (pretty quick) and the problem has been resolved.
It has been resolved in R8.5.2 FixPack 4
and in R8.5.3
The bad news is that these are not expected to be released until September 2011 (probably at the same time).
The immediate fix is...hit F9 and you'll see the text on the buttons.
A little more background...
this wasn't an IBM/Lotus problem, it is a problem with Windows 7 sp1.
IBM has now coded what they refer to as a "defensive fix" to make this work in Windows 7 sp1. I assume that eventually Micro$oft will fix SP1 (probably with sp2) and it would fix this problem also.
Feedback response number WEBB8KERLW created by ~Bella Kiazen on 08/04/2011