Hi Eric, for what I've seen on proovit.com, you are only using localization of static content. Do not install higher than 5.4
DNN 5.5 is the first implementation of content localization. The behaviour of the language selector changed and DNN has not really got its act together with the localization issue. Do not use 5.5 and 5.6 in production yet. There is also an enhanced version of the control panel that affects the behaviour of the language selector but try it out first.
DNN CL is certainly not yet ready for production environment. You will have to make choices if you need to implement content localization now, but my advice is to hold off if you can for DNN's CL to mature. If you must, there are a few external solutions, some commercial, some for free. Have a look at
www.cup.edu.kh - it runs fine, even though on DNN 5.6.0. But that version has its issues and it was a totally wrong decission of mine to install it in production.
It is running on the same setup as yours: 2008 Server - actually 2008 R2 but that makes no difference. SQL 2008 SP1 - but again, that makes no difference. You must understand what is happening. When you change language, you the language of the dynamic content (which you do not have) but not the language of the static texts (which you have plentifull)