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The setting only applies to clips added to
the timeline *after* you change the setting.
Tools / Options / Advanced tab / Picture
Duration
You can change the duration for each clip
manually. Move your pointer around on the
edge of a clip until you see a double red
arrow. Now drag the double red arrow...
you'll see a tooltip that shows the duration
changing.
BTW PhotoStory 3 was designed to create
slideshows from still images.