Greg,
I have used the Menu creation the last couple of days to make some custom menu's for Fringe and Dexter episodes I record in HD. So I understand some of your questions and I'll try to answer what I can.
The menu designer can be a bit tricky the first time. Mostly for me it's been trial and error.
The overlapping issue means a button or displayed clip is converged with another button. It's a bit tricky to find the offending button, but make sure the "thumbnail frames" are not close to each other. Click on one (in menu design) and make sure the light grey outlined box is not overlapping another thumbnail frame. Also make sure they highlight with a color you select in the designer menus! I've burned a disc once without checking.
When I make backgrounds I tend to use the PIP option instead of importing a jpg or video. You can resize to full if you need to or you can delete if you don't like it. For some reason the Menu designer only lets you import and not delete the background, it's crazy, but that what I found.
Save As Template, enter a name for your template. It will appear on the left hand side and you can use it for your projects or delete it after you are done. I'm guessing the slider/thumbnail might generate a jpg if you are making a blu ray menu. The player can display this picture once the disc is loaded, but this is only a guess. I usually just edit an XML file and load my picture into the META folder under the BDMV structure.
Once you have everything designed and saved. Double click on your new menu and click apply to all.
The menu designer takes a bit of trial and error to get something useful for sure.
good luck
cwh