With regards to the AtlasSprite, I haven't used it in the past. My images are all PNG's the same size as my background PNG. Each of the images have an object and the rest is transparent background. For example, one is a table and the other one is a bowl but both files are the same rectangular size just with transparent backgrounds. Does this make sense?
I did it like this because it was the best way I could find to place my objects exactly where I wanted to and I don't know if I can do this with an AtlasSprite.
I understand. So those objects (table/bowl) could be the animated parts? If so I don't think this is a good approach. Read this interesting topic about memory (remember you're an a mobile device, be conscious about your memory usage) http://www.cocos2d-iphone.org/forum/topic/3112. Personally I would have sprites for the object itself and workout the co-ordinates to place them, it's not very hard.
With regards to layers, I don't think I'm understanding correctly. I have many different Sprites stacked up on top of each other, some with their own blend modes (Screen, Multiply, etc) to be able to give the same effect as the original graphic had in Photoshop. It must be this way, I can't join them all together in one graphic. You think that if I group them in one layer I can achieve this?
Yes, just like in Photoshop where you have layers for your image you can put layers on the scene. There's an overloaded add method where you can supply a 'Z-depth' value. So your liquid can be added at z=0 and your container added as z=1. The container layer will overlap the liquid layer. Hope that's made sense.
ps. Use layers sparingly too for performance.