Tripp,
Some of that is expected behavior. When you add 2D data to a 3D scene, it will not be displayed until it is moved under the "3D Layers" section and an elevation has been set. You have to set an elevation source for each 3D dataset so ArcGIS Pro knows where it will start drawing the dataset (on the ground, relative to the ground, on a custom elevation surface, relative to a custom elevation surface, or at an absolute height).
You will have added your DEM as an elevation surface from the 3D map properties. When you add your local DEM as an elevation source, you can remove the default (you only need one). Expand "Ground" and click the red X to clear it out. The color of the elevation surface you add doesn't matter, it's only using the elevation values.
Check out the online Help Documentation for information about setting elevation surfaces.
Pro.ArcGIS.com > Map Properties > Elevation Surfaces