This looks like a permission problem having to do with creating images for equations -- nothing directly to do with the pop-up list.
Check that /opt/webwork/webwork2/tmp exists and that the webserver has write privileges in that directory.
Next make sure that the file preview.sty exists somewhere in your TeX macros hierarchy -- it's required by dvipng. You can run
pdflatex ....webwork2/bin/check_latex.tex to see if there are any errors or it can't find that file.
see also http://184.108.40.206/moodle/mod/forum/discuss.php?d=1276 for more details