The setting you are referring to is only relevant for the on playfield special. So if set to extra ball it will provide an extra ball if you hit that special target when lit.
Making point thresholds will continue to award free games.
Also, keep in mind that Gottlieb EM games limit extra balls to one per ball in play. So if you get the special and the extra ball both lit on the playfield hitting the second target will not award an extra ball if hitting the first target already did so.
Gottlieb multiplayer games were never convertible to full add a ball play where the option existed. You only get full add a ball with a game that was configured as add a ball to begin with.