What system are you using?  Mac or PC?  I don't see what you're describing.  Everything drops strictly downward. 

Do you have a small screen, to where the whole sub-menu won't fit vertically?

Here's what I'm seeing (you may have to click on this to see it animate):

-Noel

You have your UI settings up so large that the menu doesn't fit vertically within the boundaries of the screen.

You can't have big fonts in menus that long and see things over the top of the menus.  That's not Photoshop but basic Windows operation.  You could change your display settings to make the menu fonts smaller.

-Noel

I'm sorry to say it sounds like a monitor with more vertical pixels or the ongoing inconvenience of having to work around super large menus are pretty much your only options.

-Noel

"The header toolbox"?  ??? !

You mean the Menu Bar!   

Don't mean to nit pick, but using the correct terminology is very helpful in a forum.  I honestly had no idea what you were talking about until I saw the screen shots.

Great job Noel and Pete.

Im curious as to what screen resolutuion your set at and are you using the default windows 7 aero theme?

That's the opposite of what I see.  I assume you must have run the ClearType Tuner to make the font smoothing look better.

It's likely you have a monitor that reverses the typical Red - Green - Blue orientation of the tiny colored stripes on the monitor display, for which the font-smoothing algorithms pre-compensate.  What brand and model is it?  Just curious.  I have a pair of (older) Dell Ultrasharp 2001 FPs.

-Noel

One thing i did notice is your not running photoshop at fullscreen (the program window is not maximized) that would probably help with the menus at at bigger text dpi settings.

Also if you don't want to maximize, moving the application window more towards the top of the screen would probably help with the menus at larger text dpi settings.

I know EXACTLY what you mean, moonlightgal; I have exactly the same feelings and from the sounds of things I work like you do.  I like to keep the edges of desktop shortcuts I might choose to use visible at the top and bottom.  I could see from your screenshot you do too (mine was cropped to the edge of Photoshop).

Unfortunately, with menus as long as those in Photoshop, I think you'd either just need a much larger monitor or use a smaller font size to get them all to fit.  I'm not really fond of the idea of subdividing Photoshop's large menus into more sub-menus, as those take more effort to get to.

Maybe you should consider a Dell U3011 monitor upgrade. 

-Noel