SOLUTION! It's a SETTINGS issue. DOUBLE CLICK the pencil tool. You should get a small pop-up window with settings. In the bottom half, there are 3 checkable options. Check "Keep Selected" (which will close your paths and allow you to continue to draw once you release a line) and "Edit Selected Paths". If you don't have the "Keep Selected" option checked, you will only be able to draw individual lines. Took me a while to figure out when I jumped from CS3 to CS5.