I tried disabling it on mine, and nope. You still have to press Home to unlock the phone since there's no more swipe to unlock. The setting you mentioned only means whether the iPhone would use TouchID to unlock the phone or not. If it's disabled, the iPhone will ask for passcode after you press the home button.
Not sure why it is disabled. Try rebooting your phone. Did you happen to repair the display of the iPhone? I heard repairs form 3rd parties sometimes can disable the TouchID.
Speaking of not having to press home to unlock, My solution is to enable "Rest finger to open" in accessibility setting of the Home Button. So to unlock my iPhone, I can just rest my finger on top of the home button without needing to press it to unlock my phone.