This ini variable was was added in 6.5.1 and 6.0.3 to allow you to go back to old behavior.
Note that this notes.ini was not tested on all platforms nor all situations. Your mileage may vary.
In 6.x, the default is to use the .LNK file as you have seen. There is a notes.ini, SHELL_LINKS, that was put into 6.04 to (I guess that corresponds to 6.5.2) to control the behavior. Setting SHELL_LINKS=1 will treat the .LNK file as a shortcut and dive into the shortcut directory.
In 7.x, the default is changed (dive into shortcut by default) and there is a notes.ini to change to the other behavior (NO_SHELL_LINKS=1). There is also a UI for the user preference in 7 to control the behavior. Forget the exact wording used in the preference.