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Zoe, I didn't even think to ask but I guess that I had better do so. You do realize that you're working in an artboard?

This dark colored layer indicates that it's an artboard layer.

[ATTACH=full]106699[/ATTACH]

You can also tell when it has an artboard name on the canvas.

[ATTACH=full]106700[/ATTACH]

Unless it was your intention to experiment with an artboard, then I would disregard this file and just use traditional Ps methods. I'm not a huge fan of artboards for simple graphics. I can see what Adobe was trying to do when they introduced them and they do serve a purpose, but they can be somewhat confusing and there are much easier ways of accomplishing the exact same thing that artboards are supposed to be doing in this situation.

When I look at this artboard in the sample file you posted, all I see is a messy amateur attempt at an effect that would be much easier to accomplish without the artboard. Artboards have their place and work well once they are understood.