got an email from Support.  They've been able to repro and isolate the problem.  They are working on a fix - but there's not ETA.  

I've been going back & forth with support about this issue.  I've tried installing Studio 12 onto several different machines and they all have the same pixelated dvd menus - as well as not so high quality images in the slide show. I used just one of their sample menus and linked it to one jpg picture and the menu looks awful (background ...