There is a bug in "Keep legendary bonus" setting! I've tested it with sandbox: if "keep legendary bonus" is on, then all qualities above legendary will be created, no matter what.
Disabling this setting fixes the problem.

I'm unable to replicate this. The only thing I can think of is that this is an issue with multiple mods interacting in a very weird way. What's your mod list?

I'd like to report a similar issue, after toggling this new feature my machines won't create anything past Legendary Quality anymore. The quality levels still exist in the game as expected, with correct icons, values and names , but aren't built anymore. Very strange. The only other mod I use that interacts with the quality system is Custom Quality names by Helicopter_Ambulance

I tested a few things and it seems to be caused by data.raw.quality["legendary"].next = "mythic" not being applied when the legendary bump option is activated

Ah yep, I see it. Thanks for the more detailed description and diagnosis Wendigo007. Should be fixed now.