I'm having a simialar problem with v1.3.6 on XP Pro w/ Localhost o/s is Xampp.
The OverRide worked fine on V1.3.5. I did a remove 1.3.5 and did a Full install w/V1.3.6, then re-created CUSTOM FOLDERS and I went to admin > tools > template selection > to insure that the "custom" template that I created was there. But No luck, it was the classic filders...
I double checked the permissions on the folders as Admin, then loged on as Administerators group. Still no custom templates...
Any Ideas that I have overlooked?

thank U...
Doug