This tutorials was made with CS2 the behavior of the Pathfinder have change in CS4 you now need to hold the option (Mac) Alt (Win) key down when you click on the button to turn them into compound shape.
I am using Adobe Illustrator 10.
My question wasn't actually about getting the two objects to combine into one object, but at an intermediate step.
This is what I do:
Draw one circle (pink)
Draw second circle inside first circle (blue)
Select both circles
Click subtract (which makes blue circle 'subtract' from pink circle, so blue circle now appears white), but don't click expand.
Now at this point, in the tutorial, they are able to move the small white circle independent of the pink circle.
However, when I try to do this in Illustrator 10, although the two circles still appear as separate objects (you can see their separate center points and edge points), they move as one object, not separately, like they do in tutorial. That separate movement of the subtracted circle and the pink circle is what I am trying to duplicate in Illustrator 10.
If I click on "Release compound shape", it undoes the subtraction and I can move circles separately (pink and blue). But what I want is to move the circles independently AFTER the subtraction.
The Direct Select tool (A) would allow you to move them independently.
Ok, I just watched the video tutorial you are referring to and they are definitely using the Direct Selection Tool (A). I think the reason you are getting confused is that you are trying to use the normal Selection Tool (V). Try swapping to the Direct Select Tool (in addition to the shortcut letter "A", you can toggle to it by holding the Command key on a Mac or Ctrl on a PC) and you should have no problem repeating what you see in the video.
That was it. Thank you.