1. You didn't set the flash player's rendering mode to direct, which is required by the component. When developing in a web-environment, this parameter is called wmode. When developing in an air environment, this parameter is called renderMode.
2. The most common cause for this problem is the application background overlapping with the panorama component. You can disable background rendering by setting the backgroundAlpha property of your parent application to 0.

Due to the nature of Stage3D (the technology used to make the panorama component work) all flash elements will always be under it. This is due to the fact that Stage3D makes use of 3D hardware. There is no workaround for this.