This seems to be more a product of incorrect CSS handling than something that is the plug-in's fault.
You'll need to handle "image replacement" correctly on your text. To handle this you shouldn't need to apply any special class / ids to your wp_nav_menu code as it spits out one already with it. Use Firebug (firefox extension) or look at the source code to see what that is. It should be something like .menu-item. See the Codex page for wp_nav_menu to add your own classes and set up an id.
Once you have your class that appears on every list item, simply use a CSS rule like
.menu-item a { width: 350px; height: 75px;
background: url("images/header-image.jpg");
text-indent: -9999px; }
This will cause the text to offset and keep the image in place and clickable. You need to make sure you also display your clickable link as a block level item.