With the option on, the MC client will always look for a "local" copy to play first. It tries to connect to the share or mapped drive. This means that the path have to be exactly the same on both server and client. This makes the job for the server much easier, as it does not have to process much other than the normal file transfer traffic. Previously we had to wait quite a while before the server had sent enough data for the client to start playback. Often the whole file needed to be sent before playback. This might have changed now, but I still see no need of using MC to send the data instead of using SMB.
I've not tested much of MC's streaming capabilities, but I would think that MC is far away from being MORE effective streaming than doing a local playback. Even though the streaming was super effective, could you point out one real advantage of streaming instead of doing a "local" playback over the network??