I actually figured it out – 90% of it.
I linked the menu to photoshop – placed a shape layer within the menu. Sent back to Encore, made that shape layer a button by converting it. Linked back to photoshop, made the shape layer/button into a video thumbnail button – by renaming it (%). Then back to Encore.
It all worked, yet the damn video has an alpha channel but it is not being read within encore, it has a black background instead.