I heard a shiur from Rav Belsky on this gemara.
His pshat was that the machlokes was if the sun goes around the earth (Chachmei Umos HaOlam) or if the earth rotates daily (Chachmei Yisroel). Of course, we now know that the Chachmei Yisroel are indeed correct.
What the gemara means that the sun goes above the Rakiah according to the Chachmei Yisroel, is that if the earth is rotating, nightime occurs when the earth rotates away from the sun. So the sun is “on top” of the sky, because we are below.