Okay,

My problem is annoying, but I am sure it has a solution (for better or worse)

I have a PSD (cs5.1), with a series of named layers that are Smart Objects

I choose Open > file.psd (in Illustrator)

My options allow me to set layers as objects (desirable) or flattened.

When my PSD is rendered in AI I get almost everything I want: Layers and Names. The problem is that for some reason, there is a layer at the bottom of the stack that is a flattened series of about 8 layers from PSD.... I was confused at first, thinking maybe there is a limit to the amount of layers that AI will convert from PSD.

Not really, there is something else I missing: I went back to PSD and removed half of the layers, leaving less PSD layers then I had imported in AI (that did not get flattened). The new PSD opens in AI with the less layers, but still several layers flattened at the bottom of the stack.

I also tried flattening all the individual layers in PSD in the event the SmartObject was creating problems... after opening in AI, same damn thing. About 11 layers separate and named and one layer with about 8 layers flattened with the layer name as [name1+name2+name3+name4 and so on)

I am trying to isolate why, but could use some insight from anyone who has encountered (and hopefully solved for this)

Much Thanks!