$libdir not working

Hello

Forgive the newb question...

I'm trying to run the code:
CREATE FUNCTION plr_call_handler()
RETURNS LANGUAGE_HANDLER
AS '$libdir/plr' LANGUAGE C;

and getting the error:
An error occurred when executing the SQL command:
CREATE FUNCTION plr_call_handler()
RETURNS LANGUAGE_HANDLER
AS '$libdir/plr' LANGUAGE C

ERROR: could not access file "$libdir/plr": No such file or directory
[SQL State=58P01]

Yet, I'm able to create the function with no problem when I run:
CREATE FUNCTION plr_call_handler()
RETURNS LANGUAGE_HANDLER
AS '/usr/lib/postgresql/plr' LANGUAGE C;

I found the location by running in bash:
pg_config --pkglibdir

I then tried to edit postgresql.conf by adding the line:
dynamic_library_path =  '/usr/lib/postgresql:$libdir'

I then reboot the OS and get the same error when trying to create the
function...

feels like postgres is not picking up the conf file, or at least the
line I added in the conf file.

appreciate any help!

Thanks

Scott

BTW - I'm using pclinuxos, and postgres 8.4