Hey Stacey,
I don't have IE8 here atm, so haven't tested it but I noticed that you're using Modernizr and Respond.js. Have you tried downloading the production version of Modernizr (there's a checkbox there so it will include respond.js automatically). That might solve some incompatibility issues which may or may not cause the not firing of the media queries.
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Have you checked the loading order css vs js ? If the respond.js gets fired before the css gets loaded you might want to defer script loading or place it at the bottom of the master page.
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Secondly, I'm not sure I fully understand the problem with two css files, if you move them to a rootfolder, you don't have to leave them in App_Data no?
But if you'd like to stick to SF and store everything in the App_Data folder, you can always reference it directly. Next to the App_Master and App_Theme folder inside of 'Aardvark' I often create a JS folder that contains specific theming stuff and reference it by src="/Sitefinity/WebsiteTemplates/MyTemplate/JS/script.top.min.js"
VisualStudio will give you an error that the file won't exist, but besides that, works like a charm.
Jochem.