fly- yes you steep the all the grains together. You use strike water to steep in to maintain ~155 degrees. Then transfer the grains to another pot, leaving behind the water you steeped in, and then sparge the grains with water about 175-180, which is a rinse of the grains to wash out sugars. Add the rinse and sparge to the apple juice in primary, and you're in business.
syd- do not boil the apple juice.
brandon- I have used DME for a batch as well. I only used a pound, but 2 lbs would be good too!