Hi,
Yes it was a bug. That settings is for when using excerpt mode with feed manager and when the read more link was enabled, it was supposed to make the read more link open in a new window. The problem was that we had it wrapped inside NeatHtml which would block the onclick and would also not allow a target attribute because that is not valid attribute. However, in excerpt mode we were already removing the markup when generating the excerpt so there was no possibility for xss in this case and therefore neathtml was not really needed for that configuration.
This is now fixed in the source code repository.
Best,
Joe