It looks like the "default" setting is not working in the current version. I have created a few new blogs without selecting the template from the drop-down and the database tables are not being copied over.
I then selected the template from the drop-down and everything is being copied over fine.
I need the "default" setting to be working so I can use the batch create plugin to create a mass amount of blogs.
I used the host blog id #1 to create the template from.