photoshop is appropriate for what i want to do.
Probably not. The old nail vs. screwdriver analogy inevitably creeps up, especially for anything involving sound. The obvious error here is that audio simply isn't eneabled in the Codec options and thus naturally nothing will show up. Why it isn't enabled (and seems not accessible at all) is another matter, but since you didn't provide any info about your audio sources, it's impossible to even guess and PS being a graphics app, there are limits to its abilities to decode, convert and resample any audio. Or in other words: It solely relies on Quicktime for all of this and somewhere along the chain something is not working due to something specific. Anyway, and allow me to be blunt: It's a rubbish workflow, considering that QT itself sucks on encoding AVIs of any kind. Simply download the free VirtualDub, export the graphics as an uncompressed file and then fuse audio and video there. This will also open up a wonderful world of getting better quality output and more compression options...
On your Timeline, I am not seeing an Audio file, but might just be missing it. For Video (with Audio), I use Adobe Premiere Pro, so am not all that familiar with the Photoshop Extended Timeline.
What are the details of your Audio Source Files? Have you placed that/those onto your Timeline?
Does the Audio play back in PS-Extended?
Now, some general comments on Video & Audio. First, one needs to Export both Streams. Your Audio is grayed out, so is not checked. You are Exporting Video only. That could mean that there is no Audio file in the Timeline, or, as Mylenium mentions, the CODEC does not allow for Audio, but the second choice you made, the H.264 does, and encodes the Audio as a flavor of MP3. The Audio section should be available for it, if you have an Audio Clip on the Timeline.
To gather the details of your Audio Clip, the free utility, MediaInfo, is quite useful.
Next, there is the issue of multiplexing. That is the ability to Export a single file, that contains both the Video and the Audio Streams. This is referred to as a "muxed" (for Multiplexed) file. I do not know the settings for Multiplexing from PS-Extended. In Premiere Pro, one has a tab, that allows one to either Multiplex, or not. For many operations, such as DVD/BD authoring, it is preferred to have a separate Audio-only and a Video-only file. For delivery, such as streaming the file, one will want the Streams to be Multiplexed into one file.
On a side-note, the first Compression CODEC chosen, CinePak by Radius, is very, very old, and is not a good CODEC to use. The H.264 CODEC (Compressor) is much newer, and will be better. The choice of CODEC is a bit art, a bit science and sometimes "black magic." For background, this ARTICLE goes into more detail.
Good luck, and please let us know more about your Audio Clip - might be an issue with it. If it's an MP3, perhaps this ARTICLE will be of use?
Now I clearly see the little "speaker" icon. Missed that in the screen-caps above. That is what I get for being far more familiar with Premiere, than PS-Extended. Some obvious differences in the two programs' Timeline. My bad.
OK, you have a DV-AVI w/ PCM/WAV Audio. That is about as good as it gets for SD material. PS-Extended should not have any issues with that Source Footage.
As far as where the setting for Multiplexing might be, I cannot point you to it in PS-Extended. In Premiere it is on one of the Tabs in the Export settings. Because PS-Extended is not as full-featured for Video, as is Premiere, it could well be that Multiplexing is always ON. As mentioned above, there can be reasons for Exporting separate Audio and Video Streams, but for genearl, streaming Video, a muxed file is the standard.
I would guess that the Multiplexer setting is available in the Audio>Settings, but yours is grayed out.
Wish that I had more than just general thoughts (and bad eyesight).
As a test, let's see if you get the Audio Settings, if you choose:
AVI, and then the MS DV Compressor/CODEC.
That is exactly what your Source file is, and is as simple, as it gets.
Are the Audio Settings still grayed out?
If they are, try Unlocking Layer 2, and choosing that DV-AVI again.
It appears that something is keeping PS from offering you the ability to Export the Audio.
If that does not work, try Adobe Flash, which would yield an FLV file, and they are always Multiplexed.
As with any multipurpose tool shortcuts are made so it never works as well as a single use tool. If the multipurpose tool was made to do the jobs as well as a single use tool they would be too expensive and cumbersome. This goes for software like PS or the latest gadget from your hardware store.
So if you have video where you want HQ tools and results, use a video editor. For AVI video the free VirtualDub is excellent. Can even cut video without having to render. No loss of quality.