svinnakota,
I think I did click on it during publishing, but did not understand the implications. Then I could not get the option back to unclick it. I went back to ArcMap and right clicked on the warning message to Except it. Then I published the sd. I published it on the server and created a new flex viewer app through the GUI. It made no difference. You are correct in that it must be the flexviewer. When I pull the servcie into arcmap it looks like it should. I have posted two photos that show the difference, one in arcmap and one with the flexviewer. I really like the transparency as you can see the underlaying features and labels.
Thanks!