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Layer 2 uses

Is it possible to have layer 2 lava scrolling up in a vertical level and a layer 2 bg at the same time? I've seen someone with layer 3 water and clouds before, so i don't think it'll be impossible, I just don't know how
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Yes, however not in that context; a layer 2 image and layer 2 level data is impossible to have within the same level. You would have to use a layer 3 background coupled with your layer 1 or layer 2 lava. The level mode that you would need to use is level mode 8.

As for the layer 3 background, that may be a little more difficult to explain....
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Not impossible.

Make the image blocks act like block 25,
It just better look good, because it'll move with the lava.