After reading more posts and playing around I figured it out. The key to adding video to a menu is this:
In Encore CS5, start with a menu template > right click > Edit in Photoshop
In Photoshop: in the Layers pane you'll see at the bottom "Background" with a lock. This must be clicked on. (Encore inserts the video here so you will not see this "background" layer. The buttons and any other layer you have will be on top of the video). Adjust the buttons and Layers located above the background as needed then click > File > Save
Go back to Encore. The menu will be black except for the button font.
Right click in Project Panel > Import As Asset > choose your video and audio > click the menu > in the Properties pane click the Motion tab > pick whip the empty Video button to the video asset in the Project pane > then pick whip the empty audio button to the audio asset in the Project pane.
After everything is complete with all motion menus click > File > Render > Motion Menus.
This will render the video to the menu. When you click the Preview icon you will see your menu with the video playing.
This is for DVD setting - I have not tried this with Blu-ray yet.
Read through my post below "Blu-Ray Menu Choppy". I have searched around, tried many different things, (Frame Rates, Compression, Doom9's Hack, etc) and have found no solution to this problem. It is inexcusable that Adobe has not fixed this problem, or at least given us the option to not transcode the menu. It's pretty ridiculous. I ended up purposely lowering the frame rate of the original video to make the choppy menu seem intentional. It seems to have worked, but still not an ideal solution.