I was able to find a brand spanking new machine with a fresh install of C3D/AutoCAD 2011 on it. Never been used or tweaked in anyway. I found the DWG to PDF.pc3 default file and copied it on to my system. And then applied the necessary changes to the file to avoid the flattening issue...and low and behold the black boxes disappeared on the output PDF file. I think maybe my pc3 file, even though it was the original, some how got corrupted.
Thanks for all your help guys!
an alternative that i've found to be quite stable is to install PDF Creator (open source, but be careful of installing the toolsbars they bundle with it) and set that printer to auto-save to a particular folder (i have a C:\PDFs folder and a shortcut on my desktop)
then i create a specific pagesetup for that printer.
it's been rock solid and also free.
(my biased opinion is that Adobe has gotten too fancy over the years - Acrobat has some nice features, but it's much more complex than i need it to be)