Hi @eroznowski thank you so much for posting this issue about dynamic background images and overlays.
This is a known issue which we are working on surfacing better within the Designer experience.
The current workaround is to:
Have the parent section pull in the background image set to cover and that section should be set to relative position
Then within that section, you should have a div block set to absolute positioning and cover 100% width and height of the section and a z-index of 0.
You can add an overlay/gradient style to this absolute positioned div block and set it to a z-index of 1 or greater
Then I typically recommend adding the container as a sibling element to the overlay element with relative positoning and give the container a z-index higher than the overlay element.