I'm not quite sure what could be causing the behavior you are describing. For further assistance with this matter, please file a support request using the appropriate link on our help page: http://www.auctiva.com/free-auction-software-help/help.aspx
Hi - Clicking the link "switch to externally hosted images" will not cause anything to immediately "happen". However when you then click "select an image", the resulting pop-up window will allow you to specifiy your URL for each externally hosted image.