@dales:
Maybe I misunderstood the initial question, but in addition to the info Bill provided, I think you will need to adjust the pass list. The default list includes the LAN, so even with BOTH selected in the blocking setup, the LAN IP won't get added to snort2c.
That is correct in regards to the default pass list. I forgot to mention that it will default white list LAN hosts. You can stop that behavior if you want by creating a custom pass list and assigning it to the interface. The default pass list setup will stop LAN hosts from communicating with bad external hosts if DST is blocked, or it will keep bad hosts from talking to LAN hosts if SRC is blocked. Using the default of BOTH is the best of both worlds, especially when using the default pass list where all LAN hosts are white listed.
So with BOTH selected as "Which IP to block", a bad external host is flagged and blocked whether it is the source or destination of malicious traffic (as detected by Snort). Now with the block in place, no other LAN host can communicate with that bad external host. However, any LAN host can still talk out to any other external host.
Bill