The UI there is misleading as the text isn't actually associated with the check box. That's meant to imply that you're getting email for all watched threads.
Brogan, are you still getting this issue? Obviously the check box has now moved, but I want to know if you're still getting email updates to new threads when you post in them.
I was trying to figure out if there was a bug that might have been triggered by changing the setting, though I can't really see what it would be now. Going to tag this as fixed. If you notice something weird again, let me know please.