Right now flash object is always rendered over all other layers no matter what z-index you assign to it. Official player has the same issue, kb article that discusses their 'solution' (which is not supported on their own linux version): http://kb.adobe.com/selfservice/viewContent.do?externalId=tn_15523&sliceId=2
This is a problem with Gecko. It will be fixed in Firefox 3. See https://bugzilla.mozilla.org/show_bug.cgi?id=137189 for details. The swfdec plugin is going to use that method once somebody gets around to implementing and testing it.
*** Bug 12442 has been marked as a duplicate of this bug. ***
*** Bug 15385 has been marked as a duplicate of this bug. ***
This bug is fixed with Swfdec 0.7.2+ and Firefox 3.0+.
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