Rated 5 out of 5 stars
I recall having had that problem (of hover not working). Here is an example: http://www.tumblr.com/tagged/cat-animation (load this page with "pause" as default and "hover to play" and "display controls on hover"). It probably has something to do with Tumblr and not with you. In any case you're getting five stars anyway, for a great add-on and for reacting so reasonably to critique (some add-on developers get quite enraged at the slightest hint that their add-ons are not perfection itself and the best thing since sliced bread).This review is for a previous version of the add-on (1.1.1-signed).
Thank you. :)
Tumblr is definitely weird here, in that you're hovering a link overlayed above the image, and the image is a background image (i.e. not an <img> tag). I don't think that's fixable in the general case, but a hack specifically for tumblr seems worth adding since it's such a large site. (Edit: done in 1.2.)
If you try it and it doesn't help, or you notice some other site which is broken, just ping me.