There's really no way to have the text change based on the block's status, so you'll either have to change the collapse/expand images and add in "Collapse" or "Expand"; or you could say Collapse/Expand I suppose in just text, if you don't want to edit the images.
Either way, this is the relevant section of code you're looking for:
Code:
<a style="float:$stylevar[right]" href="#top" onclick="return toggle_collapse('forumbit_$forumid')"><img id="collapseimg_forumbit_$forumid" src="$stylevar[imgdir_button]/collapse_tcat{$collapseimg_forumid}.gif" alt="" border="0" /></a>
This is located in the "forumhome_forumbit_level1_nopost" template.