Multilevel Lists

I cannot get a multilevel list to work. I just want any generic format, one
out of the drop-down menu next to the multilevel list button.

When I click the button and pick a format, everything looks good - it starts
off with:
"I." (or whatever I pick), and I can type in whatever I want. When I push
enter, I would expect it to go to "II.", then i could push tab, and it would
go in and be "A." But when i hit enter, the list ends, it goes back to normal
formatting.

I've tried messing with settings, setting up my own list format, everything
- no luck.

Anyone know if this is a hidden setting somewhere, or what I am doing wrong?

Here is something else interesting - even though I cluck on multilevel list,
the numbered list button is lit up when I am typing on the first line (the
only line that works), not the multilevel list burron.

Thanks in advance for any suggestions.