switching between postbits
 

Is there anyway to use $postbit when viewing a PM while $postbit_legacy while viewing a thread?

Yes - when you have a look at when the template is fetched, you'll see a variable for changing that template :).

it's $postbit in pm_showpm template. changing this to $postbit_legacy is not working.

No, it is not. That is merely the variable that stores the parsed postbit. Have a look near the hook postbit_display_complete.

I'm sorry, the instructions on how to deal with this issue in this thread wasn't quite clear enough for me.

What exactly are we meant to edit to have different postbit types appear for the PM and threads?

To do this, you will require knowledge of PHP - what I am dong is guiding people - you will learn and that is better than simply handing everything on a silver platter.