Hey Rick, yes 3 levels to Lights Out.
Looking at your screen shot I see black outside but med grey around the thumbs themselves accept for the selected one with light grey around it. In LR 5 it use to be all black around the thumbs with a very thin light border. Not sure if you use previous versions of LR and used lights out, if so that's how it use to look, all black. Did you use previous versions?
IMHO, It really needs to toggle so it is off by default, then optionally toggled on when handling images with black at the edges and similar special cases.