Target cycling filtering has no effect with tab targeting.

Time: 2:33 AM EST (US east coast) (assumed to not be a factor)
Frequency: Always
World name: Leviathan (assumed to not be a factor)
Character name: Thomas Gallant (assumed to not be a factor)
NPC name: None
Monster name:Wild Jackal (assumed to not be a factor)
Class/Level: White Mage, level 50 (assumed to not be a factor)
Party or solo: solo (assumed to not be a factor)
In-game time: 7:41 P.M. Game time/Eorzea time (assumed to not be a factor)
Area and coordinates: Middle La Noscea 15x y11 (assumed to not be a factor)
Steps:
1. Open Character configuration window
2. Select the control settings button (should be selected by default)
3. Select the filter tab
4. enable target Cycling
5. set "while weapon is sheathed." to the "all" preset
6. set "while weapon is drawn." to the Engaged enemies" preset
7. Make sure your weapon is sheathed.
8. Use tab (as set by default) to target things around you.
9. note that only enemies will be targeted, no players, pets/minions, friendly NPCs, or objects, despite them all being set to be targetable in the cycling options.
10. Make sure your weapon is unsheathed.
11. use tab to target things around you.
12. Note that all enemies will be targeted, regardless of if they are engaged in a battle with you, a party member another player, or with nothing at all, dispite the filter being set to the Engaged Enemies preset, with only the "Aggroing enemies" option checked.

Connection Specs
ATT Uverse, DSL 24 Mb/s
Cisco model VEN401-AT Modem

PC Specs
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Browser Information
Firefox 31.0