this is how it should look:
I am using Sitefinity 3.6. I faced a very peculiar problem with overlay mode. Visual Studio has an option to Format Document which formats the HTML so that it is more readable. What this option does is make the contentplaceholder html like this:
<asp:ContentPlaceHolder ID="TopMenu" runat="server">
Now when the master page is opened for editing in Sitefinity in overlay mode the contentplaceholder gets disabled. Now if i change the code to look like this
<asp:ContentPlaceHolder ID="TopMenu" runat="server"></asp:ContentPlaceHolder>
the overlay works fine is not disabled. The classic mode has no such problem.
I am not sure if anyone has faced this, but it really baffled me as to why the master page contentplaceholders were disabled in overlay mode.