Update II

Well, my first attempt at doing a prototype ended in failure.  Apparently, you can't put buttons in a movie clip symbol and I wasn't going crazy when things weren't working.

Edit: Nested buttons won't work within a movie clip if there are already scripts attached to it.  This happens in actionscript 2.

Here be the link to a dedicated article for the problem that my tutor found on button capturing.

So, we worked out that it was best to stick with the original plan and to do everything on the main timeline in Flash CS4.  The only problem is which part of the time line to jump to depending on the player actions.

Example:
Someone could pick up an item, it disappears from the screen and move on.

However, if someone didn't pick up the item, it should still be there on the screen and still move on.

Solution:
Work with the 'if' parts of Flash programing... Once I have fully figured it out / understand it.

So far there is a working prototype The Knight of Nights Testy ver 6 with half of the first puzzle sorted.

And some concept art ....

Painting backgrounds in Flash CS4 which failed...

... and some interface designs ...

I had the idea using the mobile phone as the main menu and the music player to go to the audio options.  They will be sorted out once I figured out after I get a fully functional prototype going.

In that case, is it possible to embed a .swf file within another?

That's all the update for now...