But it said Europian rights were expiaring...Does this mean that you can only sell this music in Europe? Or only music recorded in Europe? Anyone know how this works?

This applies to recordings made anywhere, hence Elvis (recorded in Memphis, TN). Technically, selling a legally-produced European CD of post-copyright Elvis in the U.S. would be piracy.

The RIAA seems to be worried less about lost U.S. sales from European imports than they are about lost European revenues by the major labels, which own the rights to entire artist catalogues, thanks to the contracts prevalent at the time which make the contracts that Courtney Love, et al. complain about now look like they're written with hearts over the "i"s and rainbows and unicorns in the margins.