I see the issue on your site but when I try to produce the problem using the stylehout-coolwater skin it works correctly for me. Maybe it is a difference between .NET 4 and 3.5, since you are running under 3.5 and I am testing under 4.0. All I can really suggest is to remove the expand/collapse button since it will expand when the user clicks the menu item anyway.
You can do this in layout.master on <portal:PageMenu id="PageMenu1" runat="server" UseTreeView="true" TreeViewShowExpandCollapse="false" />
Hope it helps,