HI HomerJ,
I would first check that the auto email setting is enabled within site admin for the project: (Log into site admin, under the projects tab select your project on the l;eft and then on the right within the project details check the auto email check box). Once this is done, then click the send email box and see if your email works.

After this is done then log back into the project and go into customization settings (Tools>Customize). Select the auto email selection on the left and then on the right side select the conditions to trigger the auto email. Then set the conditions for the different users to be affected. Also under the users area, scroll to the bottom and make sure that when the ''assigned'' condition when selected has the ''all defects'' selected. Makes changes to the defects and see if it starts working correctly. If it doesn't, I would go into site admin and select the project and then try to click the send email button and see if this releases the emails and they start working correctly (then retest within the project itself).

I hope this helps,
Dan