If you want to deal with some of the padding that is sometimes an issue in sIFR I would recommend <b>NOT</b> using the SWF type face generator and do it manually, decreasing the line spacing of the text in Flash.
In my case the sIFR text that I was using proved totally immune to any CSS that I used to adjust the padding I was seeing, either in the sIFR plugin options or in my external stylesheet. What I finally determined was that the spaces above and below my sIFR text were being caused by the Flash text itself that was generated by the automatic type face generator. My solution was to create my own text in Flash (following this handy tutorial first recommended by fldtrace above).
I deviated from the tutorial by adjusting the line spacing of my font before publishing it. In Flash CS4 line spacing is listed under the paragraph options when your text is selected. Once I published the font the adjustment in line spacing erased the “padding” I was seeing on my page.
A.