One thing worth noting about windows which can exist in overlay planes is that such windows should exist in the same window hierarchy as the normal plane windows. Input distribution should work no different for windows in different layers. A user should be able to push/pop windows at will, regardless of what layer they are in. There should be no restrictions about how windows in different layers should be parented. Layered windows should observe the same protocol semantics as normal single layer X server implementations. The only ways layered windows should affect the server is that higher layers do not clip layers beneath them and in the existence of a transparent pixel.
This mode of operation ensures a user need not be aware of what layer a window resides in and is not exposed to any layering artifacts (modulo transparency effects).