Top Layer - Moody color. Right now its blending mode is overlay. (I just want this to affect Middle)
Middle - A Group containing 3 layers of clouds, and they are all grey scale.
Bottom Layer- Ground and pristine cloudless sky with correct color and looks exactly the way I want it (no changing there).
I want the top layer to only affect the middle layer which is a group of layers. There is something I like about working in grey-scale for a while, with an overlay layer to add color on top. It's quicker and all I have to do is pick a grey value to paint with, and the color is taken care for me. The problem is, the top overlay layer affects the bottom layer which is already finished.
If I read you're post right, you are saying take the middle group, make it a smart object, open that smart object in anther tab, drag the top overlay layer in that, and do my changes there and send it back (correct me if I'm wrong). For my situation, that's the same as not making a smart object at all, and just hiding the bottom layer.
I'm probably doing it this way because after doing film composting on and off for a couple of years, I guess that's how I want to work in Photoshop. I noticed in a lot of Photoshop painting video tutorials, people tend to collapse their layers quite frequently which keeps the scene simple and less technical.
