ListBox with Fixed3D Border causing a gap underneath

Hello. I have a simple application but I have a little bug also. Underneath my ListBox control, I have a gap which is part of Panel3. If I do not use Fixed3D border on the ListBox control, then there is no gap however - I would like to use Fixed3D as it is a nice styling for the application itself.

Here is a screenshot of my application, and what I mean. [ i47.tinypic.com/htfkeu.png ] See under the ListBox - you'll see a grey space.

Here is Form1.Designer.cs

namespace IMClient
{
    partial class Form1
    {
        /// <summary>
        /// Required designer variable.
        /// </summary>
        private System.ComponentModel.IContainer components = null;

        /// <summary>
        /// Clean up any resources being used.
        /// </summary>
        /// <param name="disposing">true if managed resources should be disposed; otherwise, false.</param>
        protected override void Dispose(bool disposing)
        {
            if (disposing && (components != null))
            {
                components.Dispose();
            }
            base.Dispose(disposing);
        }

        #region Windows Form Designer generated code

        /// <summary>
        /// Required method for Designer support - do not modify
        /// the contents of this method with the code editor.
        /// </summary>
        private void InitializeComponent()
        {
            this.menuStrip1 = new System.Windows.Forms.MenuStrip();
            this.panel1 = new System.Windows.Forms.Panel();
            this.panel2 = new System.Windows.Forms.Panel();
            this.textBox1 = new System.Windows.Forms.TextBox();
            this.button1 = new System.Windows.Forms.Button();
            this.panel3 = new System.Windows.Forms.Panel();
            this.listBox1 = new System.Windows.Forms.ListBox();
            this.panel1.SuspendLayout();
            this.panel2.SuspendLayout();
            this.panel3.SuspendLayout();
            this.SuspendLayout();
            // 
            // menuStrip1
            // 
            this.menuStrip1.Location = new System.Drawing.Point(0, 0);
            this.menuStrip1.Name = "menuStrip1";
            this.menuStrip1.RenderMode = System.Windows.Forms.ToolStripRenderMode.System;
            this.menuStrip1.Size = new System.Drawing.Size(584, 24);
            this.menuStrip1.TabIndex = 1;
            this.menuStrip1.Text = "menuStrip1";
            // 
            // panel1
            // 
            this.panel1.Controls.Add(this.panel3);
            this.panel1.Controls.Add(this.panel2);
            this.panel1.Dock = System.Windows.Forms.DockStyle.Left;
            this.panel1.Location = new System.Drawing.Point(0, 24);
            this.panel1.Name = "panel1";
            this.panel1.Size = new System.Drawing.Size(175, 438);
            this.panel1.TabIndex = 2;
            // 
            // panel2
            // 
            this.panel2.Controls.Add(this.button1);
            this.panel2.Controls.Add(this.textBox1);
            this.panel2.Dock = System.Windows.Forms.DockStyle.Top;
            this.panel2.Location = new System.Drawing.Point(0, 0);
            this.panel2.Margin = new System.Windows.Forms.Padding(0);
            this.panel2.Name = "panel2";
            this.panel2.Padding = new System.Windows.Forms.Padding(10);
            this.panel2.Size = new System.Drawing.Size(175, 72);
            this.panel2.TabIndex = 1;
            // 
            // textBox1
            // 
            this.textBox1.Location = new System.Drawing.Point(12, 13);
            this.textBox1.Name = "textBox1";
            this.textBox1.Size = new System.Drawing.Size(150, 20);
            this.textBox1.TabIndex = 0;
            // 
            // button1
            // 
            this.button1.Location = new System.Drawing.Point(87, 39);
            this.button1.Name = "button1";
            this.button1.Size = new System.Drawing.Size(75, 20);
            this.button1.TabIndex = 1;
            this.button1.Text = "Connect";
            this.button1.UseVisualStyleBackColor = true;
            // 
            // panel3
            // 
            this.panel3.Controls.Add(this.listBox1);
            this.panel3.Dock = System.Windows.Forms.DockStyle.Fill;
            this.panel3.Location = new System.Drawing.Point(0, 72);
            this.panel3.Name = "panel3";
            this.panel3.Size = new System.Drawing.Size(175, 366);
            this.panel3.TabIndex = 2;
            // 
            // listBox1
            // 
            this.listBox1.Dock = System.Windows.Forms.DockStyle.Fill;
            this.listBox1.FormattingEnabled = true;
            this.listBox1.Location = new System.Drawing.Point(0, 0);
            this.listBox1.Name = "listBox1";
            this.listBox1.Size = new System.Drawing.Size(175, 366);
            this.listBox1.TabIndex = 0;
            // 
            // Form1
            // 
            this.AutoScaleDimensions = new System.Drawing.SizeF(6F, 13F);
            this.AutoScaleMode = System.Windows.Forms.AutoScaleMode.Font;
            this.ClientSize = new System.Drawing.Size(584, 462);
            this.Controls.Add(this.panel1);
            this.Controls.Add(this.menuStrip1);
            this.IsMdiContainer = true;
            this.MainMenuStrip = this.menuStrip1;
            this.Name = "Form1";
            this.ShowIcon = false;
            this.Text = "Instant Messenger";
            this.panel1.ResumeLayout(false);
            this.panel2.ResumeLayout(false);
            this.panel2.PerformLayout();
            this.panel3.ResumeLayout(false);
            this.ResumeLayout(false);
            this.PerformLayout();

        }

        #endregion

        private System.Windows.Forms.MenuStrip menuStrip1;
        private System.Windows.Forms.Panel panel1;
        private System.Windows.Forms.Panel panel3;
        private System.Windows.Forms.Panel panel2;
        private System.Windows.Forms.Button button1;
        private System.Windows.Forms.TextBox textBox1;
        private System.Windows.Forms.ListBox listBox1;
    }
}

How can I remove this gap?