That is correct - Photoshop knows nothing about the layer structure from other applications in PDF/AI files.
Photoshop also uses a different blending model from AI and couldn't retain the appearance of the file even if Photoshop could read the layers.
But AI can export their document as a PSD with most of the appearance preserved -- so you should have a PSD file with layers.
If not, something has gone wrong in the AI export process.
I then drag into PS and the image is there as a single layer only.
If it gets flattened, then this is dictated by how you structured your layers. Opacity tricks, clipping masks, blending modes and effects in AI all cause rasterization on export in order to retain appearance. Same for how theyy are grouped and certain types of fills and strokes. Anyway, without seeing the AI file, nobody can really tell you what to do to sort this out.
Thank you all. I will simply recreate the file in ID. I see nothing in it that would warrant creation in AI and certainly don't want to carry on creating these particular labels in this program. After posting this, I started seeing a warning message when exporting to PS. "Some containers in the document have been flattened." I created a quick-and-dirty layered file in AI and exported it to PS and all the layers showed up and were editable, so I am assuming the file itself had problems. Since I didn't create the orginal file, I have no idea what was done to it. The person who created it is MIA and only knew AI (not PS or ID). CPfaffenberger, I don't want to post the actual file as the products hasn't been released yet and the client is very conscious of pre-launch security .
A couple of tips...
Ps will merge anything over 5 levels deep into one layer. For best export, try and minimised the number and depth of layers in AI.
If you're remaking files in InD, try a copy/paste from AI. In InD prefs/clipboard handling, make sure 'prefer pdf when pasting' is off if you want components to be editable. Text won't be editable, shapes will be separate and individually scaleable. InD will need to be closed and reopened for this pref to take effect.
If the InD pref 'prefer pdf...' is on, the entire artwork will be one vector block.