Why is Posts page selected when showing single Custom Post Type?

Might be worth looking at the Codex for registering a post type, the rewrite rule should help:

http://codex.wordpress.org/Function_Reference/register_post_type

rewrite (boolean or array) (optional) Rewrite permalinks with
this format. False to prevent rewrite.
Default: true and use post type as
slug $args array ‘slug’ – prepend
posts with this slug – defaults to
post type’s name – use
array(‘slug’=>$slug) to customize
permastruct ‘with_front’ – allowing
permalinks to be prepended with front
base (example: if your permalink
structure is /blog/, then your links
will be: false->/news/,
true->/blog/news/) – defaults to true
‘feeds’ – default to has_archive value
‘pages’ – defaults to true

You probably want to set with_front to false.