Thanks for the reply.
OK so checking the Sample All Layers box fixes my problem regarding being able to use the spot healing brush on my layer 1. However, any changes I make on my layer 1 are also occurring on my background layer? I'm confused again. I thought you are only ever making changes on the actual layer you are working on. Essentially, my understanding of the background layer is it's there just to show your starting point and that it should never change. All changes you make are with your subsequent layers. Am I wrong?