The configuration option you are talking about is not Find dialog defaults to word under cursor. You are talking about Find Next/Prev finds selected text (not last searched for text).
If you have checked regular expression, F3 always searches down with this regular expression and not the string currently highlighted. This is unchanged since first version of UltraEdit supporting regular expression search.
Well, if you have started a regular expression search and after first found you do not modify the selection marked by the initial search and continue with F3 the search, you maybe will again find the same word, especially if you have not really entered a regular expression search string.
The regular expression option will not have a search influence if you search for example for "hello". "hello" does not contain a regular expression character. So the searches with option regular expression checked or unchecked return the same find results.
But if regular expression is checked and you select with the mouse an other phrase like "hello moosemanct" and press now F3 (find next), the search down still searches for "hello" because of regular expression is still checked. If regular expression is not checked on initial search for "hello" and you now select "hello moosemanct" and press F3, then "hello moosemanct" is searched in down direction if the configuration option I mentioned at top of this article is set.