I have revisited and investigated more closely the known problem of degraded picture quality in standard-definition DVD menus that have a still image background.
The menu having a still image background is degraded in two distinct ways:
(a) The menu becomes slightly pixellated; from the grabbed stills I took of the menu it appears that the pixellation is down to the rendering being performed at half-resolution in both the horizontal and vertical directions. So the resolution of the image produced (for PAL) actually seems to be only 360 x 288; this is then upscaled back to 720 x 576 for output and you can see the pesky little squares.
(b) The menu is darkened somewhat when compared with the original background graphic file and buttons etc.
When looking carefully in the preview within Studio's Edit window (play the menu full-screen with full-res previewing enabled) - the darkening of the menu does occur in the preview, but the reduction in image resolution does not. The image darkening effect is not new - I checked in Studio 10.8 and 11.1 and it's there in those earlier versions too.
I have attached two enlarged screen grabs from a small area of the Studio 12 stock menu "Seasons Fall main" - cropped from exactly the same area around the the start of the heading "Your Text Here". Both files were grabbed as bitmaps and then enlarged 4x using pixel resize so that the original frames' pixels are easier to see - and hopefully distorted as little as possible by the grabbing process.
i. In the first image - attached to this posting, the grab is from the menu after rendering; the pixellation gives the image a "coarse" look.
ii. In the second image - attached to the second posting, the grab is from exactly the same menu, but rendered after applying the workaround method of giving the menu itself a transparent background and putting the background on the title overlay track. The image shows no "coarseness".
Download the two images and place then side by side in an image editor and the darkening in image 1 also shows up nicely.
Regards,
Richard