Thank you for your reply. While I understand the logic of your answer it does not seem like the correct way to make this work. Your method may 'work' but it feels more like a workaround. I mean by this logic could I not have just used this image below that has a border around the entire shape? As someone who has done stencils for a long time I understand the concept of buildings 'bridges' between 'islands'.
I tried using this particular image with that in mind (before I posted here), while also trying out same image (but inverted), but both of these yielded the same results as posted in the original video.
I guess what I need to know to move forward is how 3DSMax is choosing what is solid and what is negative space. Simply inverting the image has no effect.
Thanks Again.