Hey there Kasha,
I've been looking over your issue and while I'm really not sure what exactly you're trying to do after looking at the on and off state jpegs that you posted to begin with and then the tables you had for links more recently. It's really hard to say without you sitting down with me and drawing out what you want or need it to do.
But what I do know is that you need that middle section to stay a constant 775 px wide and you need the right and left sides to stay a consistent width as well. So, what I would do if I were you is use a slicing method using Adobe software should you have it. Make your slices of the jpeg images in Adobe ImageReady, optmize them in Adobe Photoshop, then save optmized as in ImageReady again as HTML and Images format and that will make all the tables and such for you in HTML. You will have consistent width for everything you need and it will not stray from those sizes (assuming you don't force anything larger than the table cells). But I don't know if you have access to that software or are familiar with that technique or not. It's just a suggestion that I could see working with that layout.
I see nothing wrong with the layout as you've shown it. The only thing that concerns me is you talking about "expanding backgrounds." I'm not exactly sure what you mean by that. I could see the left side (button as you call it) there expanding downward according to hover effects as if that's the menu area. That wouldn't be a problem. All you would need to do there is make a slice that has enough height to deal with the expansion.
I'm not sure if this helped at all or if I was even in the same ballpark as what you are looking at doing. This was just my interpretation of what I read. Good luck with your project!