Buttons inside a movieclip

Hi all, this should be a fairly simple question.
I am attempting to build a 2 level navigation system (dropdown horizontally when mouse enters top level button).

I have the top level sections as movieclips with 2 frames. when mouse enters, it goes to frame 2 of the movieclip, and the 2nd level navigation buttons appear. I have the 2nd level sections set up as buttons, however these buttons do not respond to their over state. (they’re supposed to change color but fail me).

Question pt 1:
Do buttons function properly inside movieclips? I’ve found that not only in my case are they not responding to a simple mouse-over, but the ‘hit’ area isn’t even being respected. Seems to only care about frame one of the button.

Question pt 2:
Should I be building this thing differently alltogether? Are there any good reference files out there?

Any help or ideas are greatly appreciated over here.