I would not use text-indent to hide the text. By doing that users with "Images Off" loose the ability to navigate since there is no visible replacement text.
The empty element for the sprite image is what I normally call the sandbag. It gets set as position:absolute; and when comes after your text it naturally layers above it since it is a positioned element lower in the source order.
Here is a simple example of a Sprite Nav with Replacement Text, just view the page source for complete code structure.
I also remember Paul writing a detailed example for you in one of your older threads, have a look through it as well since it gives a better explanation of how to structure the html/css.
Keep in mind that you can reduce the amount of BG positions by setting a negative margin on the sandbag for hover/focus. The first link I gave uses that method.