Eric,
You're not telling PM to scale to inches. You're telling it to scale to 100% of the cropped size. Try changing the scaling to the middle choice (change the popup to inches afterwards) and then set the inches at 12 (your largest dimension). Set the JPEG quality to 0, and limit to 1.9 MB.
As for your 4.6.9 issue, we have PM 4.6.x and PM 5 residing on the same systems all the time with no issues (though I haven't specifically tried the Photoshelter uploader). The Photoshelter folks have taken over development of the Photoshelter uploader template so you'd have to take up the issue with them.
-Kirk