When you “open” a PSD in Illustrator you are actually linking to the PSD and the entire image is an external image, editable only in Photoshop or other compatible software. To access the vectors and text (as outlines only), save the PSD as EPS or PDF, then open that in Illustrator. Text will be outlines, and other raster art and effects may complicate matters. If you can avoid the need to do this and keep your edits in Photoshop you will probably live a longer and happier life.
Edited. I changed PDF to PSD in the first sentence. I’ll bet that was confusing.
Did open the ai file as a flatten image or use the options to turn photoshop layers to Illustrator objects?
If you did not see this dialog then you might have had it originaly as 16 bit and illustrator converted it or more likely you have the file in quickmask mode causing the problem reopen the psd file and turn off quick mask.
see if this is the problem.
Thanks for the advice. I think I figured out what I need to do. I just needed to delete the background and leave the text. I've just started trying to work with Photoshop so I dont know very much, just learning. I have been using Illustrator for everything I do. Thanks again for the help it will come in useful.