Gap with Rounded Edges

Your problem is mainly coming about because you are using the default template as your base. That template relies heavily on images despite it’s initial appearance and the gap corresponds with part of an image.
If I were you I would choose a different template from which to start (and the end result would be very close to what you have now – but without the gap) but if you really do want to keep what you have we can try and help you through that.

If you did want to consider alternatives themes / bases, have you seen http://themes.wordpress.net ?