It's pure speculation on my part but I'm guessing that somewhere within the application it's using SELECT INTO to create a permanent table. Maybe for one of the End-Of-X processes.

>> That makes the TLOG, for the most part, useless as well. Is that correct?

Having this option set would cause the TLOG to be invalidated if one of the non-logged operations (SELECT INTO, WRITETEXT, etc) would occur. If none of these command were used, the TLOG backup would be valid.

Since we're assuming that the application is using one of the non-logged operations, it's probably safer to not rely on TLOG backups as part of your diaster recovery plan.

-Mike