I found a workaround for the time being but if anyone has or thinks of a better solution please let me know. Using the example previously provided (http://www.accountmaven.com/pages/test/simpledialog.htm ) , change the following so that the 'statescontainer' is on the same level as the 'bd' 

<div class="bd">
    <div id="statesautocomplete">
      <input id="statesinput" type="text">
    </div>
  </div>
  <div id="statescontainer"></div>

then add the following code 

this.oAutoComp.doBeforeExpandContainer = function(oTextbox, oContainer, sQuery, aResults) {
        var pos = YAHOO.util.Dom.getXY(oTextbox);
        pos[1] += oTextbox.offsetHeight + 2;
        YAHOO.util.Dom.setXY(oContainer,pos);
        YAHOO.util.Dom.setStyle(oContainer,"z-index",99999);
        return true;
};


then tweak the css to position the elements correctly. But the autocomplete should not be under the button group any longer