It is working correctly on my Windows 7 machine. Perhaps you have misunderstood the process. It also depends on what precisely you are trying to do.
Import Settings refers primarily to importing from CD. To change that, click on Edit/Preferences/General>Import Settings and then select the format you want:

This will not affect the importing of any other source. When you import an MP3, or AAC file into iTunes, that is the format it will be imported as.
The other use for that setting is when converting existing files.
If you wish to convert a file that you have added to your Library (for example, an unprotected iTunes Store AAC file), iTunes can do that. However, the Import Using setting has to be set as outlined above. For example, if you want to convert from AAC to MP3, the Import Using setting has to be set to MP3. Once it is, the command File/Convert will show MP3 as an option.
Another way of putting this is as follows: in the screenshot below, the option File/Convert/Create MP3 version will only appear as MP3 when the Import Using is set to MP3.

If Import Using is set to AAC, then you will see File/Convert/Create AAC version instead.
If I have misunderstood what you are trying to do, please explain further. In particular, if you cannot change the Import Using setting as outlined above, at which point does it not work? What happens? If the problem is when you try to convert an existing file, what is the format of the file you are trying to convert?