To me it makes sense that if you don’t want to save cover art in either of the two given ways, cover art will not be saved.
It’s not really a bug, but it could be made clearer by having an overarching option “Save cover art“ with three radio buttons: embed, separate files and both. “Only embed a front image” could then be moved one level down in the options tree (it already depends on the option “Embed cover images into tags”).