thank you for the suggestion. After a bit more experimentation I now have both internal AND external sites capturing :)
I am still seeing the warning that 'System proxy was changed' but as all transactions appear to be captured, I will just ignore that for now!
The 'Automatically detect settings' option you screenshotted is greyed out for me, but iBoss runs a service anyway, which perhaps overrides any of the browser settings.
The settings 'Use setup script' and 'Script Address' are set to On and populated with the pac file. I confirmed that the .pac file is accessed by viewing result of Options -> Connections tab (by looking at 'Copy BrowserProxy Configuration URL). Then set Fiddler using 'Use System Proxy' under Options -> Gateway tab.
For my particular case, I am running foxyproxy in order to quickly move between different settings - I think this might be the key to this working in my environment, since I would be unable to set a port or host otherwise.