Actually, I very well may be. ;-) I've reported the problem to the developer after all three occasions where I've tried the addon, but it's still there. I'd bet that there aren't a whole lot of folks who use the auto-hide option, and even fewer that use folders to organize bookmarks on the toolbar. I see that you do, Evan, but I don't recall seeing that often in any screenshots I've stumbled across. Personally, I see the bookmarks menu as more of an archive, and the toolbar more for everyday-usage.
In my case, I long ago removed the text from the links on my bookmarks bar… the I'm sure I'm in a very, very small minority in wanting to use SmartBookmarksBar for just two reasons: to auto-hide the bookmarks bar and to condense the padding and sqeeze more icons onto the bar. Again, the folders only become unusable when the auto-hide option is selected.
Other than that, it's a wonderful extension, and certainly worth recommending.