The list is pre-loaded with "Default" and "Community" options and then the current value of subsite parameter "DefaultTemplate" is used to create a third option that corresponds to the current setting if it is not one of the pre-defined options.
Except... there is no "DefaultTemplate" subsite parameter. I think it's supposed to be "DefaultMaster".
In addition, the current entry should be appended to "master_teplate_options", not "master_template"
Bug and patch: http://openacs.org/bugtracker/openacs/bug?bug%5fnumber=995