I had to pay $39 for Adobe to answer this one... But thanks to the big hint from Jon Bessant in a reply below the tech was able to help.
We use the Touchup Object Tool all day long and were looking forward to Acrobat 6 fixing the issue 5 had with images that were flipped in the PDF - once edited they placed back flipped the wrong way. However with the new problem of changes to layering in 6 our hopes seemed dashed. The fix is to go to the Advanced menu>Accessiblity>Add Tags to Document. Now the layering stays the way it should. It all has to do with Acrobat accessibility features that make it easier for vision and motion-challenged users to access information and controls for PDFs. A tagged PDF works well for screen readers and text-to-speech engines (not so great if you want to print them on press). If you want to read about "Accessibility features" go to Acrobat 6 Help Menu>Complete Acrobat 6 Help and Search for "accessibility" and then "tags".