[SB65]

Seems like you just need to animate the margin-top as well as the height of the elements. Something like:

    <script type="text/javascript">
$(document).ready(function(){  
  
    //When mouse rolls over  
    $("li").mouseover(function(){  
        $(this).stop().animate({height:'150px',marginTop:'-100px'},{queue:false, duration:200, easing: 'easeOutBounce'})  
    });  
  
    //When mouse is removed  
    $("li").mouseout(function(){  
        $(this).stop().animate({height:'50px',marginTop:0},{queue:false, duration:200, easing: 'easeOutBounce'})  
    });  
  
});	</script>

You might need to give your menu a bit more space at the top to fit it in.