"Do not Display Product, if child products also out of stock" not working

[SparksArts]

I have parent products with child products for different sizes. I'm using the VM Custom - stockable variants custom field to set the child product sizes. My goal is to have a size automatically be removed from the drop down menu when that size becomes out-of-stock/inventory quantity drops to 0. From what I understand, the VM Configuration/ Shopfront/ Action when a product is out of stock setting "Do not Display Product, if child products also out of stock" should accomplish this. However when I set it that way, all products disappear from the frontend - parents and all childs, even those in stock.

I did notice if I have the VM configuration set to "Products Out of Stock are orderable, no special action", and I have open a product details page that includes an out-of-stock size, then I set it to " Do not Display Product, if child products also out of stock" and go back to refresh the page - then it works correctly. The out-of-stock size doesn't show. But if I then go to any other category or product page and everything is gone.

All parent products are assigned to categories, but all the child products are not in any categories. That's the only way to keep the child products from showing up in category browse pages and searches.

These are the versions I'm using:
Joomla 2.5.8
Virtuemart 2.0.14

This site is under development on a temporary URL http://70.85.227.67/~ozswmwer/ - could that possibly be the problem? And when I update it to the live domain name it will work correctly?

**/   Nope. I switched the site to a live domain name but it still doesn't work. :-(   /**

What else can I tell you about my set up?

Any ideas what I'm doing wrong? Or does this just not work in Virtuemart?

Thanks for your suggestions!
Richard