What exactly is the problem you see?  I am also running 0.9.6 and I can't get anything to happen with your instructions.

However, there is something funny going on... and this issue DOES NOT depend on the width/size of the cover/side pane.

1. Untick "Tools, Party Mode"
2. Tick "Tools, Side pane"
3. Tick "Tools, Play Queue as side pane"
3. Enable the art display plugin
4. Play some music with a cover
5. Check your left hand side pane shows the source pane, queue pane and the album cover.
6. Tick "Tools, Party Made"
7. Double click on a track to add it to the play queue
8. Notice that at the top of the screen it says "Not Playing" with the slide bar on the far left - even though the track you played in step 4 is still running. [BAD]
9. Notice the track is on the play queue in the side pane [GOOD]
10. Notice the album art has gone - it looks like the play queue has expanded on top of it. [BAD]
11. Untick "Tools, Party Mode"
12. Notice the album art is still missing
13. Notice that at the top of the screen still says "Not Playing" with the slide bar on the far left - even though the track you played in step 4 is still running. [BAD]

This is reproduceable for me.

Note if you repeat this but turn off the album art plugin in step 3, then the problems in steps 8 and 13 persist.

I've found this to be a problem in 0.10.0.  When the artwork's vertical size gets large enough, the Rhythmbox window grows to accommodate it.  If it gets slightly taller than the screen, the maximize button doesn't work properly.  Even larger than that, and party mode doesn't work.

It seems like the problem could be fixed by keeping Rhythmbox from vertically resizing when the artwork gets too large, or to prevent the artwork from growing beyond a certain point.

Fixed in 0.12.5.