Even with Ignore Extensions checked, the extension is being converted to ALL CAPS in the modify capitalization action
I would expect the behavior to be that if ignore extensions is checked, it wouldn't act on them.
The checkbox applies to the section it is part of, only affecting the wildcard or replace expression and so on.
I guess there is an argument for it applying to the capitalisation option in the second below that, but that's not how it works or was designed, so it's not really a bug.
All options shown are to affect the files in the preview display.
So I would consider that as the primary relationship rather than the individual option sections.
For example. if you change something in the first section it affects the display, and so does changing options in second or third sections affect the file display, so it wouldn't make sense when an option doesn't affect the file display.
So it's not a bug, but just a behavior inconsistent with experience of using the app.
Either way it's up to you to judge what should be done.