When you say "still displays close buttons", do you mean:
1) They are always visible on the tab, at all times, regardless of the setting
2) They are not visible, then when you hover over the tab, they become visible
Number 2 is what I have implemented at this time for the theme, but if I'm following along correctly with the most recent changes Jon has made to the default theme, the behaviour looks to have changed in the most recent dev build to be:
3) Never show the close button on tabs, even when hovering, unless "show_tab_close_buttons" is true, in which case show it all the time.
Is 2 what you are experiencing?
And at this time, is 3 the current, preferred / canonical behaviour for the close button?