I have Final Cut Express. I can not figure out how to create any form
of Chapters - whether in Clips or a Sequence - then move it somehow
into iDVD and have iDVD be aware of the chapters. I see I can move it
to iMovie, and add chapters there, but I want to cut out that step. Is
this possible and if so, how?

No, the only way to do that is to use dvd studio and not iDvd.

Even though the apple site says it is possible? I follow their
instructions for adding a chapter to a sequence and exporting to
quicktime and then opening it in iDVD. However, the apple site says I
can open the quicktime movie up to quicktime to verify if the chapters
were properly encoded within it. However, when I check I don't see
them there (appearently a pulldown in the lower left will appear which
will show the chapters).

So I am not convinced yet is an iDVD problem just yet since it appears
I still have a problem BEFORE I even get to iDVD.

Do you have any documentation to show that this process can NOT work
with iDVD. That I would certainly pay for.