I downloaded this 5m DEM of New Zealand, Wellington.
This is in a TIFF format and I have added to ArcMap 10, applied a colour ramp, some hillshading, and applied a standard deviation on the histogram:
I know that the MSD format does not support hillshading, so I published direct from the MXD. As a dynamic service, it draws fine (but slow as you would expect).
So I cached the service using Mixed mode, and the compact storage type.
Viewing the cache in both ArcGIS Desktop and REST, the resulting cache is a solid red:
At some of the closer levels, the expected symbolgy comes through in some tiles:
Have tried re-creating several times and still getting the same problem.
Would like some advice on troubleshooting this.
Have not seen anything related in the Esri forums.