This is never answered completely anywhere.
If there is a dropdown to select what page I want to use for my blog, why would it ignore the template I select? I realize it uses the index. Then why in the world would they a) make you name a page if they ignore it anyway. b)give you an option to chose a template if they ignore it. I read all of the 'it doesn't work that way' posts all over...why the options? If it ignores it why would I select a page to use? Why would it ignore my template?
So I customize the index page. Then there is zero reason for the option. I can pick a front page template but for the blog, they give the options and then just ignore it. Makes no sense. But I can edit the index. Sounds totally stupid.