shouldn't the button be 100% width if it's "display: block"
No. That just means it's the only thing in the space vertically (assuming you aren't using another trick to force something else there as well). It doesn't mean it has to fill up the width of that space.
I think your problem in this instance is that the input
is not natively a block element. Try nesting it inside another div and set the margin on that. But I don't have an IE8 browser to test this with at the moment, so it's just a guess.