[Mark Archibald]

Dave-
Right after I posted, I figured out the workaround of importing the .psd as a comp.

Darby-

It IS a project upgraded from AE7, but the .psd was created in the same version of Photoshop CS3.
After seeing your post, I tried it on a new project and new psd, and the same thing happens.

It does seem to be something to do with the layer group, because I often just get a layer called “layer group/source.psd.”

This is a bad BUG. I will fill out the form on their website and hope for the best…

-Mark Archibald