I personally think the website looks good the way it is.

1. I would make the image a background image, then add your text as links. Add the hover effect on the div that contains the background image.
2. The Javascript is fine. I would leave it.
3. To get the text to change when hover the image, you have to use javascript. Write a mouseover script that changes the text link when the image is hovered over.
4. Start writing your script. Look into different methods to achieve what you want to do.