Hi Pete,
You should be able to join all 5 films together into one project. Before doing that, make sure you set the project's aspect ratio; you can use both 4x3 and 16x9 videos in the same project, but you need to set the project's aspect ratio initially. Drop all five films into the project timeline, do your editing and then set your chapters.
You can use static images or moving images as thumbnails. Simply select the image you want as thumbnails from your project timeline and click the option to set that as the thumbnail in the chapter creation menu. If you're using moving images, the thing to remember is that menu and chapter thumbnails are only a certain length so if your image is less than the duration of the menu/chapter thumbnails, it will jump to the next image and so on until the time is the duration of the menu/chapter thumbnails. I made this mistake in my first and only project so far since getting PD7 Ultra in June and I could have avoided that by picking the option not to use moving images.
Hope this helps.
Arturo