Starx

Here is my solution & features it offers:

• Remembers the last position and gradually animate to/from this position
• Block positions are calculated and animated on load and every resize
• Repositioning happens on $(window).resize() thus maintaining the fluid nature of the block, despite the use of position absolute
• Support variable heights
• Minor change on existing markup & CSS

On your existing markup, I added a wrapper division.

<div id="wrapper">
    <div class="block">
        <h2>I'm block 1</h2>
    </div>
    ....
</div>

To maintain the fluidness of the block, I created a function to position the block on the wrapper. Here is the function for position of the blocks:

var reposition = function() {
    wrapper = $("#wrapper");
    pLeft = 0; //The starting point of all repositioning
    pTop = 0;

    maxRowHeight = 0;

    $(".block").each(function(){
        $(this).stop(0,0).animate({
          'top' : pTop + 'px',
          'left' : pLeft + 'px'
        });

        pLeft += $(this).width(); //Add the left position for next block

        if($(this).height() > maxRowHeight) maxRowHeight = $(this).height(); //Find out the longest block on the row

        //If the next block will exceed the width of the wrapper
        if(pLeft + $(this).next().width() >= wrapper.innerWidth()) {
           pLeft = 0; //reset the left
           pTop += maxRowHeight;
           maxRowHeight = 0; 
        }
    });    
};

Finally, the script to toggle the block

$(".block").click(function() {

    $(this).siblings().slideToggle('slow'); //Toggle other blocks

    if(!$(this).data('active')){ //if the block is not active
        $(this).data('left', $(this).position().left); //sets its left
        $(this).data('top', $(this).position().top);   // and top position
        $(this).animate({ //animate at the top and bottom
            top:0,
            left:0
        },'slow');

        $(this).data('active',true);

    }else{

        $(this).animate({ //animate to its last known position
            top:$(this).data('top'),
            left:$(this).data('left')
        },'slow');

        $(this).data('active',false);
    }
});

Demos

• Demo[Full] (Resize this to see the fluidness maintained)
• Demo[Full] (version supporting variable heights)