I can't decide if I like the water balloon analogy you use. On the one hand it does help in describing some of the changes in shape, on the other hand it implies that there is a fluid like substance or volume if you like that can freely move around. The foot is such a structural object, nothing is moving around like that. The arteries and veins control blood supply and return it out of the foot precisely (in healthy feet). The bones do not change in shape or volume, only in orientation to each other. Muscles do contract and expand and a contracting muscle does indeed shorten and increase in width. Considering the size of the muscles in the foot I believe that for our discussion we can ignore the change in volume this brings to the circumference.
I do not agree that the change is girth defies logic and can only be explained by looking for shifting volumes. In my opinion the changes come from the change in shape of the foot, the widening of the ball is not just the spread of he metatarsals, the change of angulation between most bones in the foot at weight bearing is as much a factor. When you think of the foot as natures shock dampers just as in a a car you can imagine that when when loaded the foot "compresses" not unlike their counterparts in a car. The major difference, the bones do not compress into themselves, instead the structure does. It's hard to put into words but I hope this makes any sense.
To know how the change of shape can effect a girth measurement without the volume changing we look at a 2 dimensional circle. A circle is the smallest circumference in relation to the area (volume) inside the circle. If you change the shape, maintaining the same volume but a larger circumference.
So when the foot "stretches" out to carry weight the position of the basic structure (bone) changes with everything around it. Not that the ball of the foot is ever close to a circle but the change in shape adds circumference without added volume.
The volume changes as well when the toes bend in gait. Important in the functionality of the foot but not an issue when we talk about taking static measurements weight off or weight on or semi-weight bearing.
For the record I do the same Fred does, measure with the foot resting on the floor carrying it's own weight and the leg but with the customer seated.
Fred, as to your question about casting at heel height, I can only speak to a modest (max. 15/8) heel height but that's how I like to do it, it takes a lot of work and guessing out of the cast to last modification process. I still trace and measure the foot without a heel height and use those measurements on the last. Mostly because it is nearly impossible to record the position of the measurements otherwise and with poorly recorded measurements, no matter how well intentioned, your result will not be satisfactory.
My

Rob