The reason it was not picked up was because the maxTimeOut value should be placed at the end of the machine.config file just before the closing configuration tag. As soon as I have done it this way it started working.

 <system.transactions>
   <machineSettings maxTimeout="01:00:00" />
 </system.transactions>
</configuration> 

Try setting the value in the 32bit machine config

C:\Windows\Microsoft.NET\Framework\v4.0.30319\Config 
 
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