PDM doesn't show where used info for form tools (.sldftp). So a get latest operation doesn't download the form tool.
Additionally when the form tool is modified the parts do not update. Users have to replace the form tool in their part with the same form tool to get the part to update.
Do I have to adjust a setting in PDM to get this to work properly?
This is due to a couple of things.
A: Inserted 'Form Tools' do not depend on any other document in order to exist in that particular part or document. There are no standard external references.
The external reference icon in the 'Form Tool' only establishes:
1. If the 'Form Tool' is linked to its definition/master tool (-->).
2. If the link between the instance/inserted tool and its definition/master tool is broken (-->?).
Also notice that we have another icon in the 'Form Tool' for unlinked tools. It looks like a lock and appears in the form tool icon image.
Until the above SPRs are resolved, there is no chance for this to work like you are wanting. I would advise all of your users that they will need to either perform a "Forced Rebuild" or edit the formed feature.