This doctrine, "God is everything" did not originate with the Besht. It is true that the verse of the Torah ["You were shown to know that The Lord is God, there are no gods besides Him."] is explained to support this belief. But the practice and goal of union with the God that created all and permeates all and is All appears in the Upanishads [the final sections of the four Vedas written 1000-500 B.C.E.]
The first one to make Yoga into a coherent unified system was Patanjali [circa 200 B.C.E. during the time of the Second Temple].
"Yoga" means "union", i.e. union of the finite transitory self with the infinite "Atman" or "Brahman" [eternal infinite self].
In Yoga-Vedanta philosophy there is one true God that is invisible, imminent, transcendent that created everything. The name the Hindus give to this God is Brahman.
All creation is composed of the substance of Brahman.
 This is not traditional Torah. In the theology of the First authorities (Rishonim - Medieval sages), God is everywhere but separate. The world and God are not one. The world is not made of Divine Substance. It is made from nothing.
Creation ex-nihlo is the view and philosophy and emphasis of the Torah as explained by the Rambam and other Rishonim [authorities of Torah of the Middle Ages].
Modern day Breslov is an attempt to beat Hindu Yoga-Vedanta at their own game. It is not Torah.
Changing the essence and meaning of Torah as defined by the Rambam and the Geonim bothers me.
(note 1) This is described in detail by the Ari. At first, the light of God was everywhere. So there was no place for creation. So he contracted his light and made an empty space like a sphere. [There was also a point of light left in the center of the space.] He then sent His light down through one opening and the light went down a bit and then started curving around and became the first sub sphere (called Keter) in the larger sphere. This happened ten times.
(note 2) In this doctrine (panenthism) God also transcends the World, and so is not equal to the world. Rather, he contains it.
See for example: Lekutim Yekarim from Pinchas of Koretz Parshat Veetchanan: "There is nothing in the world but the Holy One Blessed be He." (This is a later book. It is not from the original books of R. Pinchas.)
Ben Porat [page 126] from R. Yaakov Yoseph brings one story from the Besht that he said "There is no place empty of God." Later the same story in Heichal Bracha (from Kamarna) got expanded into him saying, "There is no existence besides him."
(note 3) He said that the sepherot of Azilut (Emanation) are Godliness. After that i.e. the sepherot of creation, formation, and the physical universe are not Godliness. (Eitz Chayim Heichal 1, Shar 3, chapter 3).[The Zohar says in Emanation alone, the vessels and light are Godliness. After Emanation just the light is Godliness not the vessels.]
This is independent of the "Contraction" question. But concerning the contraction the Arizal wrote, "He contracted Himself." (Eitz Chayim 1:2:2; 1:2:3; 1:2:4) [Not "his light".]
The appeal of this doctrine is entertainment emotional value, not truth value.