It sounds like you may have hit a bug in the font embedding features of Flash Catalyst. Would you be willing to share your project with us to take a look at it?
The best way to do this is to log on to Acrobat.com (your forum login should work there) and upload your .fxp file, then share the file with me -- pflynn at adobe.com.
Thanks for passing along the file! I can see the problem you're talking about on at least one of my computers, too. I'll have one of our text-rendering experts look at this and then get back to you as soon as we know more.
Back with results!
We've identified a bug in the Flex SDK that is causing this text rendering problem. The upshot: you should be able to avoid this issue by replacing Arial with a similar-looking font like Helvetica (though not Verdana, unfortunately).
The details: this bug occurs when the same text object transitions between an embedded font (the handwriting font you're using in the Up/Over states) and a non-embedded font (Arial in your Down/Disabled states). We're planning to fix this for the next release. To avoid the bug in the meantime, you'd want to have the text object always use embedded fonts, or always use non-embedded fonts. Most fonts are embedded, since that's the only way to be sure everyone who views your site will see the correct font. But a few fonts (like Arial and Verdana) are not embedded, since they're essentially guaranteed to be on any computer that has Flash.
Just to be clear, it's perfectly fine to mix the two types of fonts in the same Catalyst project. You just don't want to have a single text object that switches between the two types during a transition -- in Catalyst 1.0, that will risk hitting this bug.
I hope that helps, and sorry for the trouble this caused you! Let me know if you have any questions or are having trouble with the workaround.
Great! Sounds like an easy fix. Thanks so much for all the info and help!