Diva,
I just wanted to let you know that I had the same problem as ksoup getting the images to zoom on hover on a clients site. I wanted to post my solution in case others experience the same issue. In the image settings, admin/configuration/images there is a setting image - use proportional images on products and categories. This was set to zero on my clients site. In looking through your snapshot of the settings in the config tab I noticed that it was set to 1 in your config. As soon as I set that to one on my clients site the zoom on hover started working.
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