I don't know whether this helps or not, but adding a "real" jquery source seems to solve the problem. Maybe a jqLite bug?
Example (updated version from the the one posted at stackoverflow):
Pure js example here http://jsfiddle.net/GbuNn/6/
No browser guaranty mouseover/out event consistency.
May be should remove counter check of mouseenter/mouseleave event.
This issue has been inactive for 2 years, and presumably is stale. If it's still an issue in 1.2.4, I'd be happy to reopen it. Thanks!