Wrong. You have to make a new layer for each label, like "Home" vs. "Info," but you don't have to make a new text layer for each tentacle... I'm not even sure what you're referring to here.
Open the file in Photoshop, and add your text layers. Turn each invisible and switch to Imageready. For the rollover states that you want the images to be visible, simply turn on the layers with that state selected. You can even move images for different states, so the entire, um, entity could shift 10 pixels down and 10 pixels right when you rollover one of the tentacles.
Does this make sense? I'm not sure how else to explain it, except with a screenshot. If you need a screenshot, I'll be happy to take one for you.