The DVD spec only offers subpicture highlighting to indicate the current selection on a menu. As a subpicture is only allowed to have 4 pure colors (one of which has to be used as transparent background) it is impossible to use it to display "normal" images.
To do what you want, you will need to use a workaround which involves a stack of similar looking menus and the "auto activation" feature. Please have a look at the Adove Encore forum FAQ:
How do I create a button rollover effect?