Context is important for conditional value lists, in your case the context is in the file you are working in, not the file the data comes from. Are you sure you have added the value list in the file based on the TO based on the external file table and choosen the right TO (based on the context where you are going to use it) at "Include only related values starting from"?
I read through my question and your response again after driving for an hour in rush hour traffic and found the problem. Yes, it was the correct TO. I figured out what I did. I was working in the wrong relationship at some point. I had it where both of the relationships were using the calculated result instead of the first one linking to all of the records in that state. I changed it to link to the plain old State of the record (which would show every record for that state), then to use the cQualifiedState relationship to show only the related ones.
Buried an egg for myself and turned it into a dragon by editing the wrong darned TO.
Thanks for the clarity!