In keeping with the old saying that a picture is worth 1000 words, here is 2000 words worth of pictures.
You can see the desired behavior in the first picture. The second picture shows my configuration. Note that I reordered the phonebooks within the box to list Michele before Internal Phonebook, but the system alphabetized them. Also note that I selected Michele for the rapid dial keys, and that rapid dial on unused keys (i.e. the 5 line keys where I want the Michele phonebook) is enabled.