Just tried it as suggested and unchecked both boxes in the RoE menu while running the GE (as before). Same result. Planes on Plotted mission just fire away. No change in previous behaviour.
As a side note, this RoE menu/command is redundant and confusing. While I can understand that you may wish to use it for additional features in the future, at this stage, it is redundant and unnecessary.
When a player starts up the GE, his side is already set for either Tight or Free under the Game Preferences menu. He should not need to go into another menu (RoE) and set it, again. IMO, when the GE starts, it should already know the Tight/Free setting. If you want the GE to auto-save this setting into the *.hps file, that is one thing. To require a player to enter it manually should not be necessary.
Also, the player might select Tight/Free and this may be inconsistent with the current RoE file setting. I suspect that this would cause confusion and problems.
Lastly, there is a hotkey to allow a player to go Weapons Free (~ symbol). This button is used so that when the action gets too complicated for a player to handle, he can quickly and easily turn auto-defense over to the AI with the hotkey. Now, under the current regime, he has to depress the Weapons Free hotkey and then still has to go into the RoE menu to turn it off. That pretty much defeats the purpose of a hotkey. When he depresses the Weapons Free hotkey, the game should automatically change everything (including save the new settings to the *.hps file, if necessary.)
Also, both boxes are selectable because they are separate options for each ROE and will only be effective for the indicated ROE.
-edit I think the issue here is a vague dialog as it stands. The two checkboxes are not mutually exclusive settings but options for each ROE. Other options would be listed below the self-defense column and also have a setting for each ROE.
If both boxes are selected, what behaviours are supposed to occur?