Below is what I've got working here now:
From the skinny palette, click any icon to toggle global palette in full expanded mode (not shown).
I don't get little square minimized button at all, and I don't know why.
Trying to figure out what is the difference between your set up and mine that gives you the little square button when you don't want it?
Could it be that you use status menu trigger, but actions here use global macro palette trigger?
I don't know.
To get this working at all I had to restart.
I read some old threads on the forum about palettes disappearing.
It has been a recurring problem with no clear reason why (that I found so far).
Just quitting/launching KM engine did not do it.
Needed full restart.
I don't know if that is important on your side or not, but it was here.
Also, this question:
Do you want to use the skinny palette, or just use hotkey: ^ ⌥⌘ G ??
If you want to use skinny palette, I have some ideas how to "dress it up".
But later for that, if you want it.
Must get it working first.