how do you create a dvd menu in dvd Studio Pro 4?

For that actual video, in FCP you should use Export Using Compressor, and use one of the 16:9 DVD presets to export to MPEG-2 and AC3. For the best results, play around with the GOP (take out the B frames if the bitrate can afford it), set compression markers, etc.

For the menus, you can either use a video background, or you can indeed use Photoshop for a still background. For the buttons themselves, you just drag a box and set its target to whatever timeline/chapter you want. Then you can either use preset "highlight" shapes for the "selected" look, or you can use a black-and-white image created in photoshop to define highlights.