Hi Sandy,
When Email Notification is enabled in qListForm, the Show Users box will add any user in Sharepoint whose personal settings have an e-mail address setup. It is not currently possible to configure the e-mail tool to use a people picker, but we could provide an enhancement request to make this consistent with other places in qListForm configurations.
Instead of manually adding AD users and groups to Sharepoint, there are ways to import user profile information of user accounts in AD for both Sharepoint Server 2007 and 2010. You may find some of these links to be useful.
http://support.microsoft.com/kb/827754
http://msdn.microsoft.com/en-us/library/ms585156(office.12).aspx