just a few issues:
The anchor tags weren't closed, so that may have caused some issues.
Any time you want something to behave like a link, it should use an anchor tag; I noticed the first li tag was just text. Technically, you can still achieve the same effect, but I'm guessing you're attempting to link to something.
When you're using html text for links within a button that is using a background image, I recommend putting the text into a span which makes it easier to format. When you add padding to an anchor tag without using the span, you can get extra padding on the opposite end in some browsers even with a set width. Just a little trick I learned over the years.
When using sprites, make sure you add height, width and display:block properties to the "a" selector. This will ensure that the entire link is clickable.
It looks like some of your hovers are jumping, it might be an issue with your sprite. It's crucial that your measurements are accurate. If it's even 1px off it can produce an undesired flicker effect.
Hope that helps!