i don’t know what future plans you have for this add-on, but is it possible to have the button display a drop-down menu instead of opening the bookmark toolbar?--ie, exactly how IE 8 does it.
This would be even greater if the Bookmarks Toolbar automatically disappeared again after a bookmark were clicked on. That way, I wouldn’t need to remember to toggle the button off afterwards.
In addition to my suggestion above, I have another complimentary idea: make the toolbar appear on mousedown (and bookmarks be activated on mouseup). This would allow using the toolbar like a menu, where the actions of opening the toolbar and choosing a bookmark blend into one quick gesture.