You can use any version to paint menus (and for that matter any decent paint program can work), but the direct import through a PSD file requires the use of layer folders, which only exist in Version 7 and up, and aspect correction which only exists in version 8. I don't recall Version 6 having those features but I didn't spend that much time with version 6. I know version 5 didn't have them. You don't have to use aspect correction, but you have to remember to create the menu in 640x480 and then stretch it out to 720x480 when your finished in order compensate for the aspect difference, otherwise you won't be able to import the images.
I mean, talk about planning on Adobe's end.
Yeap, they don't call it "Creative Studio" for nothing.
I can create a quicky tutorial on making a DVD menu in Encore, at least how to make the "assets" that make up the menu using standard methods. Using PSD import really is alot easier, since navigating around in Encore tends to be a pain.