Just so it is clearly understood, SharePoint 2010 came with the capability to display the master pages of migrated 2007 sites. This capability therefore differentiates the master pages of the two environments into two categories: V3 (SharePoint 2007/WSS 3.0) and V4 (SharePoint 2010/Foundations).
So I came across an issue where we began migrating our existing 2007 environment to SharePoint 2010. We had a custom master page and theme feature rolled out on the 2007 environment. We needed to maintain this master page post migration so we could ease the user base to the 2010 (v4) environment one site collection at a time.
When we deployed the 2007 master page and theme to the 2010 environment, it wasn’t showing up as an optional master page in the drop down of the Master Page Settings. This was because SharePoint considered it a version 4 (v4) master page instead of a version 3 (v3) master page.
Of course, I searched online for two days with no viable solution. Evidently, the answer was VERY simple (as it usually is)…
1) Go to Site Settings > Modify All Site Settings
2) Under Galleries, go to Master pages and page layouts.
3) Locate your custom master page and edit it’s properties.
It should now be available as an optional master page in the Master Page Settings of Look and Feel.