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Welcome to the forum.
It seems that with some Menu Sets, the ability to replace the background image is not possible. It appears to be a Bug in PrE 9. Why it seems to affect some, but not all, Menu Sets has not been traced, at least by the users here. I would file a Bug Report with Adobe, so that they can be made aware of the issue and either issue a patch for the program, or re-do the problem Menu Sets.
PS- also see this recent THREAD.
Please check out the recent thread "PE9 Menu Background" which goes into this Premiere Elements 9 problem when replacing the background of many of the DVD Menus.
Please be advised:
a. The size of the image is not at the core of the matter.
b. More than just a few DVD Menus are affected.
Do I remember correctly that you tested each Menu Set in PrE 9, and did a list of those affected by the Bug?
What boggles my mind is that considering that the Menu Sets are just PSD files, that some would be affected, while others are not. Still, that does appear to be the case. I would think that a side-by-side comparison of one that does work, and one that does not, would reveal some difference.
I did not look at every last one of those DVD templates. I did a sampling of several categories and found problems in each. As it goes, I have only just begun, but was hoping that Adobe would pin point the cause before I had to go through every last one of them which I am in the process of doing.
But the problems is more widespread than that generalization "a few" and definitely, absolutely, and with certainty does not have at its cause core the size of the image.
To be continued....
Add On...that link that I posted in my response before this one is fairly representative of where we have been on this matter and where we are going. Note, that at this point, there are least two flavors, one where you cannot replace the background of a menu and other other where a widescreen background image views as a standard background image. Its all in that thread.
I would also like for Adobe to look closely into this issue.