Did your external links begin working as expected? I tried various configurations, but I’m unable to reproduce this issue.
I’ve noted in the past that browser and other caching sometimes require a hard refresh for a setting to apply. And of course checking your preferences as @JammyDodger pointed out.
@pfaffman I just tried this and it didn’t give me the user change message as no one (in my sandbox site) had modified the external link setting. After changing it for one account and reapplying the default setting I was prompted to change it for 1 user.