The reason this does not work is because your effect does not really expand the image as such; he breaks it into pieces, and then uses absolute positioning to move them. Overflow does not apply, since absolute positioning pulls them from the stack of elements. That is, suddenly the images are in the layer in front of the containing div.
You will need to write your own effect if you want this to work. One way to do this is to create a grid from small divs and use fragments of your image as a background; you can then compress the divs in different directions so that they look as if they are moving away from each other. Or, if you don't mind losing the "destructive" effect, you can just make the image expand and disappear gradually. This is probably the easiest way.
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