question about flattening transparency

[howldog]

using Object, Flatten Transparency in Illustrator 10, do i select only
the object that has transparency applied (dropshadow etc), or, do i
select both the transparent object and the object underneath?

I'm finding this odd circumstance with white text, dropshadowed in
Illustrator, over a cmyk tif file. If I select just the text and go to
Flatten Transparency, the entire text box turns white.

If I select the text and the tif underneath, and flatten transparency,
the box does not appear, text looks good, but, the tif appears to be
broken up into "slices", almost like ImageReady.

Is this how it is supposed to work?