Checking the box doesn't have any effect (Level Text is not enabled).
The elite/rare icon is never shown.

Do you have level text enabled? It needs to be disabled in order for state icons to show (as it says in the tooltip).

No, I didn't have that enabled. No matter what options i choose, they never show up. I have auto-focused and name-only disabled.

I removed all my add-ons except Blizzard_ ones, and I still can't get them to show up.

Please ignore this, it's not a bug.. I was looking to see the "elite" icons, but there aren't any, only for rares and bosses.

It helps to see the elite status on the nameplates for world quests.

I dug into the lua code, and added another classification check for 'elite' in UpdateStateIcon(), then modified one of the unused icons in state-icons.tga to include a dragon. It works perfectly.