I did some testing on this and created a page like yours and was able to get it to work as expected. What I think is happening is that when you select the continent it is defaulting to the United States. Since the populate list from array is applied to the onChange of the county select list the states will not be selected unless a change is made to the country select list.
To account for this in your populate list from array behavior applied to the continent select list update it and in the Target list options enter 1 for the leave top. This will make it so the user must select either one of the choices and when they do the states list will populate automatically.
On your page if I choose Canada it will populate with the Canadian states, if I then select USA it will populate with the US states.
