Seems like this topic was never resolved. I am having what appears to be the same problem.
I’m running v1.6.4 build 20080626.
I have created a .tpl file and set the global template settings to point to system/templates/ but there is no template library drop-down when I select create new template and click the radio button for use template from library.
I am following the example exactly as presented in the documents.
Is this broken or am I doing something wrong?
—edit—
For some reason, after I closed my browser and reopened it, this feature is now working for me.