This vibration setting is for haptic feedback, not the phone in general. The problem is that the vibrator in the phone itself is weak, not the length of the vibration (which is what that setting controls). With my old Droid X, I could hear the phone vibrating from two rooms away when I got a text message. This one, I sometimes miss it vibrating when I'm in the same room with it. And forget about feeling it vibrating when it's in my pocket.
This is a small gripe, mind you, and not something I can't live with. The phone is leaps and bounds better than the Droid X.
As far as 4.0.3 goes, the only reason I want it is so that the NFC formatting problem is fixed (I heard it is).