or it's a bios bug-make sure you've got the latest-n-greatest for your board. It's possible they forgot to hook up the code behind the setup option that disables the video output on the AGP devices.
A good bios would try the PCI device, since that's what you specified, and if it wasn't able to find one, it should have beeped at you, then switched to AGP.
Bummer. In my situation, I don't even have the option, so I'm stuck with seeing the POST when I start up my cab.
Perhaps a wiki section is in order for "cab friendly motherboards" with model #s and whatnot that have support for either this feature, or the ability to upload your own logo into the POST screen.