Every time I try to import a photo from my 7D into Encore for use in a menu I get the error message "software to decode this is unvailable on the computer installing appropriate software my help to aliveate this problem". I find this odd since Photoshop is part of the suite I am using. Am I missing a setting or something?

If you are trying to import RAW files, you need the Adobe camera raw update 5.6 or later.

Nope just regular jpeg files that come off my 7d. Thats what is so goofy about it.

There might be a resolution limit in Encore to 4096x4096 pixels. Try downsizing the image, and see if the problem persists.