Let me explain what the plugin and that setting does.....
The plugin, in general, will hide the content from a group. If you have hidden the content to Guests, then they will see what a guest sees. Nice and simple.....there is no 'error' message other than what you have chosen to display within the plugin's settings. Why? Because the page itself is still viewable.....it's some of the content within it that is hidden from view. If you have turned off Guest access in general in IPS, then they will see whatever page it is that IPS has chosen to display to those viewing it (probably a 403 forbidden)
Now, the setting "Allow search engines to view hidden content", when enabled, overrides that and will SHOW the content to search engines....which is considered cloaking, as you are showing Guests a different result to what the search engine has indexed.
Disabling "Allow search engines to view hidden content" has zero effect.