If you leave that setting on NPRs will completely ignore each other untill you enter a system, it might happen that a system you enter then has a bazillion ships and colonies from different empires all intertwined, if you enter such a system it'll explode into a complete smegstorm of violence with more 5 second increments than you'll know what to do with
The setting is very good for clearing up AI hangups though.
Alternatively you could turn on auto detection in systems you have no presence in, this should manage to make AIs always go for fighting rather than constant popping into and out of sensor range. it could make things worse, but I think on average it'll make the AIs fleets get thinned out, and maybe keep them from spreading out too much .
Edit: oh, it seems the profanity filter is a red dwarf fan.