Hi SDM36,
This post is 2 months old, but I’ll go ahead and replay anyways ??
I struggled with this issue also, but finally got it to work. A few things you might try, if you haven’t already…
1. Under Appearance>Customize>Miscellaneous, make sure the “Fancybox” checkbox is checked.
2. When you go to edit a gallery, in the gallery settings panel to the right, make sure you set the “link to” drop down to “Media File”
3. If you’re are wanting it to work on an image inserted directly into a post (not a gallery), then using the “Edit Image” shortcut icon that shows up at the top corner of the image, then click the “Link to Image” button that appears just underneath the Link URL field.
Beyond that I’m not sure – but doing those things made it work for me.