This would seem to be the correct method by default but when using a linking pick list and the search filter option, the link does not link to the latest version if the pick list points to a revision controlled workspace.
The only way to use a linking pick list and have the link point to the latest version of a record is by using the "latest version option" which give the user a drop down selection rather than the field search function when selecting the record for that field.
Need to create a new "Pick List Option Type" - With Search Filter, Latest Version.
The business case for this feature is documented in the two Support Forum posts below:
http://forums.autodesk.com/t5/Autodesk-PLM-360/Link-Inconsistency/td-p/3897500
http://forums.autodesk.com/t5/Autodesk-PLM-360/Link-Problem/td-p/3812958
BD