Season chicken breasts with 1 teaspoon salt and the pepper. Melt the butter and oil in a large skillet and saute the chicken lightly over moderate heat for 3 - 4 minutes on each side or until they are lightly browned. Remove the chicken from the pan. In the same pan saute the onion for 5 minutes until soft but not browned. Slice the chiles into long strips and add half of them to the pan with the onion. Add the salsa and cook over a low flame for 8 - 10 minutes or until the sauce is thickened slightly.
Meanwhile, place the remaining sliced chiles in the blender with the milk and 1/2 teaspoon salt. Blend at low speed until smooth. Add the sour cream and blend again. Place half the chicken on the bottom of a 2 quart casserole. Cover them with half the onion-chile mixture and half the sour cream sauce. Repeat the layers.
Mix the grated cheeses together and sprinkle on top of the chicken mixture. Bake uncovered in a preheated 350 F oven for 30 minutes. Serve directly from the casserole.
Note that the amount of chiles in the recipe makes a mild/medium spicy dish -- add or delete chiles to taste.