but from what I have seen to add an index from a file and have the file selector area get un-ghosted you have to change the drop down menu to local from disk from its default of from url to even select a pmi file

From what I've understood the MorphUp maunal, local index means you have all files (not only .pmi, but also .pmp/.pmf) of the index on your local disk. It is aimed at testing your own (generated by you) packages before uploading to a server.