Am I missing something?

“Am I missing something” is a really bad title. Please post a question related to your topic if you want an answer.

No one will click on this topic about external editors because you didn’t make that clear in the title.

A good alternative title that may get more attention would be :

“having trouble setting an external editor, any help?”
or
“unable to assign sublimeText as editor”

My suggestion to your issue is to look into the “DAT” tab of the preferences window and make sure sublime is specified in the “Text Editor”
then restart touch designer and try it again.

Screen Shot 2018-06-16 at 9.50.57 PM.png

As Harvey said, it’s easier and more preferable to use the preferences than it is to set the environment variable these days.