There are numerous problems with the UI Effects with the new versions of both jQuery and UI. I've created sample pages to illustrate the problems with each combination of library...
NOTE: Links below have been fixed - were originally broken
jQuery 1.3.2 + UI 1.7.2 : http://layout.jquery-dev.net/demos/test_jq13_ui17.html
jQuery 1.4 + UI 1.7.2 : http://layout.jquery-dev.net/demos/test_jq14_ui17.html
jQuery 1.3.2 + UI 1.8.a2 : http://layout.jquery-dev.net/demos/test_jq13_ui18.html
jQuery 1.4 + UI 1.8.a2 : http://layout.jquery-dev.net/demos/test_jq14_ui18.html
Just fixing jQuery 1.4 compatibility in UI 1.8 is not enough - this also requires an *immediate patch* for UI 1.7.2. There are a lot of plug-ins and code that will no longer works after upgrading jQuery 1.4. But there will also be changes in UI 1.8 that can break plugins and code, so it will take some time before everything can be made compatible with it. Therefore UI 1.7.2 should be compatible with jQuery 1.4 so that users do not have to wait until all their widgets and websites are updated before they can start using 1.4.