I have exactly the same problem on 2 of 6 domains.
Maybe I failed to deselect the extra security whilst creating them initially, I really can't recall, but unchecking the box now certainly makes no apparent difference to permissions at all. I'm guessing the switch in Panel only changes permissions on future files and isn't a switch that runs a script over the account. ie Once something is created with that flag the only way back is to login on the original shell account and change all existing permissions manually.
Think it might be easier (in my case) to remove everything and FinneganBeginAgain before I upload any additional content than I have already, which would further compound the situation.