PROBLEM FIXED! but not really solved. here’s what i did. first off, the highlights weren’t created in photoshop, they’re just the automatic ones in encore.
My fix was to unbuild the menu step by step, then rebuild. I first took out the video background (leaving the audio) and built a DVD folder to test the result (i’ve learned that rendered motion menus aren’t accurate but DVD folders are). It was the same, no highlights. Then i took out the audio, built a new dvd folder and whatayaknow, the highlights worked! then i added just the video to the project and built another folder, highlights still worked. then added in the audio again and everything worked… mysteriously.
Then i decided the timeline video needed a small change so i changed it in premier, reimported it into incore, and burnt a DVD. Guess what..? the highlights didn’t work again. This time my unbuild, then build technique didn’t work. I fixed it by changing the menu end action to menu/default, changing the loop to “none”. so the menu still loops, and for some reason the highlights work too.
The inconsistance of all this rattled my willingness to trust this software ever again. troubleshooting shouldn’t be shooting in the dark like that. I hope this post helps anyone unlucky enough to have this problem. Thanks for your help Jeff.