I may have jumped the gun.  I was testing in low lighting, but tried it again  it in a bright room.  If I enable manual IR and then go to the live video and turn off led, they do indeed turn off, but the camera goes to colour.  I tried comparing it to daytime mode and it's identical.  
So it seems manual IR is just simply going to colour mode.  I believe another user was mentioning this with screenshots.  So it does seem like a bug.
Well, I'll try it tonight taping the IR lights.