Hey Michael -
Sorry for the initial confusion but I understand the problem now. The rendering drop down for the Instanced Static Meshes is not so you can set the material for each instance. The Materials 0, 1, 2, etc. are referring to separate material slots for the same mesh. Here is an example for you, I have a cube in which the top and 2 front faces are separate material slots and you can see in rendering I have the 3 materials set up.
Thank You -
Eric Ketchum