If I set the Unpack WARs flag to true using the Administration tool, save, and commit the file and then restart Tomcat, WARs in the webapps directory are not unpacked. However, if I modify the original server.xml to set the flag to true or false, the property is observed.
Tomcat does not extract war file contents which are mentioned in server.xml. For example, add "<Context path="/SEA" docBase="SEA" debug="0"/>" in server.xml. Even unpackWars is still set to true, SEA.WAR won't be unpacked anymore.
Cannot reproduce. Can you try with the latest build and reopen if the problem still exists? Also, make sure to undeploy all webapps that you're trying to unpack in the webapps directory - build\work\Standalone\localhost is clear of all remaining files.