Why aren't the PNGs converted to JPEGs even when I choose this option?
PNGs won't be converted to JPEGs even if you choose to do so because of mainly 3 reasons:
1) the resulting JPEG will be bigger than the optimized PNG. In that case the PNG version of the image will be kept.
2) the original PNG contains even a single transparent pixel.
3) there are some PHP functions missing from your server installation (GD library is not installed) and then ShortPixel will silently fail to convert a PNG image to JPEG.