Upgraded by downloading from:
http://wordpress.bytesforall.com/
and followed the README instructions
1) download the new version of the theme YES
2) unzip the file) AUTOMATIC ON MY COMPUTER
3) copy any images you have added in a prior release to the 'images/header' folder YES-added two and removed supplied ones
4) if you have added any other files (templates, icons) copy them to the same folder in the new version NONE
5) Make sure the Atahualpa folder is named with the version number i.e atahualpa353 YES
6) upload the folder to the 'wordpress/wp-contents/themes' folder at your host YES
7) get on the backend of your site and go to Dashboard->Appearances->Themes and activate the new version YES
8) all done
And here are my setting for this problem. And I don't think I changed anything else.