Problem placing PSD file in Illustrator

G'day,
My problem is when i place PSD file into illustrator, it opens up "Photoshop Import Option" menu,
which lets me choose either:
(1) convert photoshop layers to objects (or)
(2) Flatten photoshop layers to a single image
all other options are greyed out (meaning i cannot select them)
The above 2 options will embed the image into illustrator, thus when i update in photoshop, they will not auto update.
I dont have this problem in the past (which means i dont get this menu when i use the place function) but it just poped up the last week.
But when i open OLD illustrator files which have PSD images not embeded, i am able to edit the PSD and illustrator will auto update.
Please help it is really frustrating to keep placing PSD files everytime when i have changes.
Thanks!

Hi Steve,
May i know what is the place dialogue box are you referring to?
The Place dialogue box that i get (when i press file>place) is the image below:
As you can see i dont have any "link" button to check or uncheck. I can either flatten the psd or convert to object.
My Problem is I would really like to link back the psd file for easy updates but i am not able to.
Pls help thx!~

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