The Tools panel has an area at the bottom for optional settings that changes as you select various tools. Click the Selection tool, for example, and you'll see buttons for Snap to Objects, Smooth, and Straighten (hover over these buttons to read their tooltips). Click the Text tool, and the options area goes blank, because the Text tool has no such settings. Click the Rectangle tool, and you'll see Snap to Objects and something called Object Drawing. It's the Object Drawing button that determines whether you're in Object Drawing mode or Merge Drawing mode (the traditional, ungrouped approach). Assuming it's already selected, click the Object Drawing button to deselect it. At that point, your drawings won't be grouped unless you select them and select Modify > Combine Objects > Union.
Co-author, Foundation Flash CS3 for Designers
"Luck is the residue of good design."
That did it. Thanks a ton!