tedster - 5:41 pm on Feb 3, 2010 (gmt 0)
I've been using this kind of legitimately hidden text for years. In fact, every site that has a "hover menu" is using it. There's definitely no problem, as long as an obvious user action reveals the hidden content.
How Google does the analysis technically, I'm not sure. But I've never even seen one false-positive penalty from this kind of thing. One thing we do know is that the human editorial evaluators - and there are thousands of them - are trained extensively in detecting deceptive ways of hiding text. So my guess is that Google relies on human input before handing out a hidden text penalty.