Tried this in my environment with similar results. Taking a look at this TechNet discussion, it appears that option doesn't actually map to a real setting. The correct key to enable logging appears to be:
Administrative Templates > Network > Network Connections > Windows Firewall > Domain Profile > Windows Firewall: Allow logging
While this is odd, I believe I can offer an explanation for this behavior. Microsoft simply duplicated the Windows firewall GUI for use in the Group Policy editor. Most of the settings in the new (Vista+) version of Windows firewall are new additions, with a few exceptions, logging being one of them. Logging was an option in XP SP2, as show by the compatibility list on that policy:
Windows Firewall: Allow logging -> Supported on: At least Windows XP Professional with SP2
Most likely, Microsoft just didn't want to break the forward compatibility on this existing setting, and instead, just disabled the corresponding checkbox in the newer GUI configuration. You may still need to configure the other options aside from the logging locations in order for logging to function properly.