I would also appreciate suggestions on how to create different layers of foreground objects
Do you make your background art in Photoshop? If you do I suggest you work with as many layers as possible and then once your background art is complete collapse as many as you can into groups of background_far, background_close, midground_far, midground_close, foreground.
Note the extreme closup objects like the golf clubs in the following DOTT screenshot:
And the scientific instruments in the foreground of this fate of atlantis screenshot:
The important thing to remember is to build your background environments from the bottom up. From the background to the foreground and not vice versa.
You need the information behind each layer in order for there be something to look at when the objects move from side to side. So if you start with the background and keep adding onto it with new layers, then keep all your necessary layers in tact then you'll have very little to worry about.
Save each layer out with either an alpha channel or a constant background color. You then recompose your scene layers using your sprites in AGS.
Does this make sense?
Also, objects in the far distance, like the sun in the demo, look very jerky.
The reason for this is that they are only moving one pixel at a time. This is generally countered by a technique called subpixel movement where the edges of the sprite will blend into the background (antialiasing) to compensate for the movement. Heres an example:
This is what is happening in your scene:
Your sprites are being shifted as a whole by 1 pixel.
This is what needs to happen in AGS to solve the general jerkyness of sprites:
The same scene has been rendered with sub pixel smoothing in after effects.