I think the version with the chest expanding was conveying breathing more. You might want to consider what stereotypical visual cues will make people see the action you are trying to convey. I am not sure what "jellyfish" type of movement you are going for, but if you want the character to simply bob up and down and have a wave of movement travel up and down his body, then it isn't conveying that. The suggestion that you might not need so much subpixelling might not be far off. If you know your total frame count, then why not work out the best key poses without using subpixelling and then see if a couple tweaks here and there are necessary. If that 2 frame animation (without subpixelling) is the max number of key poses you are going to do, then I think you might want to consider an even subtler animation, since sub pixelling (at this size) works really well for shifting pixels one or two pixels at most.
I am actually kind of bothered by the sword and the pose he is using to hold it. The far arm looks short to me, even though I assume his arm is bent. Also, the sword itself is a great prop for adding uniqueness to your idle. Maybe lower it and give it a sense of weight? Or are you working in a size restriction?
My 2 cents,
Mobichan