This is exactly what the Superfish plugin does for you and also adds other accessibility features like keyboard access, hoverIntent support, timed delay on mouse out, etc. Currently, you have Superfish included in the source order before you include jQuery. This won't work.
The code you currently have for fading in the menus is unnecessary. Also, you will need the CSS component of Superfish in order for it to work. Just start with this CSS file and change the aesthetic rules to make your nav look how you want, leaving the important rules that make Superfish work (such as :hover, etc). It seems like all your questions would be best answered by reading the documentation which you can find here: http://users.tpg.com.au/j_birch/plugins/superfish/ That Tolerase site is really nice looking by the way! Cheers Joel Birch.
