Found the answer (and fix) use a basic Web search. Here it is:

The problem seems to be that the chat message updates received from the server have a prefix code on them that wasn't there before; I'm not sure if this is by design or a bug. The XML parsers used on other browsers happily ignore this prefix, but MSXML (Internet Explorer's XML parser) doesn't like it. So I tweaked the JavaScript for the Chat module to discard this prefix if present.

To apply this workaround, you need to edit DesktopModules\Chat\DnnChat.js:

Go to line 59. The preceeding lines should be:
function receiveChatMessage(result, context)
{
try
{
Paste the following:
// WORKAROUND: MSXML is choking on a lead character that we're getting.
// So strip off anything before the opening '<'
while ((result.length > 0) && !(result.charAt(0) == '<')) {
result = result.slice(1);
}

I've tested this with IE8 (current), Safari (current), Firefox (recent), and Google Chrome (current).

Hope this helps!

Hi Leopold,

I'm on DNN 5.2. I made the javascript change and it's working fine now. So the next major upgrade should take care of it as well.

Thanks,

Will