[AS2] blendmode and attachmovie problem

I am trying to erase one movieclip from another using the blendmode=“erase” setting, but can only get it to work on the stage as the parent. This means it erases a hole through everything!

The attachmovie also doesn’t seem to work as I was expecting and I was hoping that when you drag the movieclip, the attached clip would move with it?

If you check out the FLA below you can see whats happening right now and what I want to achieve (diagrams provided in FLA).

I’m sure it’s a simple change, but I can’t find any answers to these problems…