After a lot of trial and error I found the cause of the issue and the fix.

System > Character Configuration > Control Settings > Target

Scroll down to Click Filter Settings > Click Filter Targets

Uncheck everything accept NPCs/Objects and Signs and Click Apply.

Holding X now hides player names and allows click through players.

I never made any changes to this setting so not sure how all the other filter options got enabled. Hopefully this post helps others who run into this situation.