This is because there is a module published to the custom_1 position. When a module is published there the height isn't set and just gets set to whatever is in that position. Since you just have a module with a small amount of text there is no height set and thus everything is showing on top of it.
If you don't publish a module to the custom_1 position the background image will be used from theme specific and you'll get a fixed height set. You can see this here:http://www.shape5.com/demo/fresh_bistro/index.php/extensions/s5-flex-menu