I want to create a a menu that has a graphic I created as the button which designates the active link. I set up my button folders(+) in photoshop and the layers and (=1)highlights. When I preview my menu and move the mouse over the second button the graphic appears but not as it should. What I basically see is an outline of it with the detail replaced with a solid color, which I believe is coming from the color scheme. How can I or better yet what am I doing incorrectly that is causing the graphic not to display when I move the cursor over it on the second button?
You can't do web-style rollovers like you're describing on a DVD. When you roll over a button, the highlights are limited to three colors. Each color is defined by the content of the =1, =2, and =3 layers of the button in Encore.
In your case, the outline you're seeing is probably happening because Encore needs to determine what parts of your color image are bright enough to be shown.