Oh, I'm relieved to hear that the setting works as expected! Sorry if my initial explanation was not clear.
In terms of AtoM not automatically deleting DIP packages after DIP upload is complete:
I haven't yet had the opportunity to reproduce this behavior, but for now I've preliminarily filed a bug report so we can follow up on it here:
I will say that this bug might be one reason to use the default /tmp location, rather than your AtoM uploads directory. With a location like /tmp, you could write a simple cron job that clears out the directory on a weekly, or even nightly basis. When using uploads, you risk deleting all of your AtoM digital objects with that approach, unless the rules for deletion are VERY carefully crafted and tested.
I will try to update this thread when we learn more, but keep an eye on the related issue ticket. And if this is a priority fix for your institution and you might want to sponsor a bug fix for guaranteed inclusion in the next AtoM release, please feel free to send an email to info [at] artefactual [dot] com, and our team can prepare an estimate for you.