I'm surprised that you would come to that conclusion. I would think that most "mega power-users" (as I'm now labeling you :) would simply assume that they were turning off some kind of public-facing display of their search history, and that you were not opting out of their ability to target ads at you with greater precision.
I would not be surprised if many people got the same impression.
I think what blindsided me was a combination of two factors: (1) I want to believe that google tries to be the 'good guy', (2) the specific wording of the history feature which states that "Get results and recommendations that are tailored to your preferences.", as in "before you enable this feature we can not do that". That feels like an opt-in.
The fact that it is only available to logged in users and that - as far as I can see - it is not public facing, but just to you specifically further increased that expectation.
Yeah, I can see now why it would give off that impression. That feature is going to give them so many issues in the future. I wouldn't be surprised to hear about its removal one day.
Could the difference be that Google associates data with your Google account if you have Web History turned on, but only uses IP addresses in their "logs system"?
If this was the case, IMHO, it would be consistent enough with expectations.
Based on Google's "What Google knows about you" page[1] I would have to conclude that their logs associate your search behavior with your account either way.
That's the doubleclick cookie personalization, which they aren't allowed to tie to your account based on the doubleclick acquisition agreement (which is why "on the web" and "on search and gmail" are separate and why if you go in an incognito window or block doubleclick cookies it will say it has nothing on you).
I would not be surprised if many people got the same impression.