I don't believe this is a bug. As TMG Help states under the topic "Latitude and Longitude":
The program will convert non-decimal Latitude/Longitude values to decimal values.
While you can "enter" Lat/Long values using a variety of formats, the decimal value is how TMG now stores recognizable Latitude/Longitude values internally as this provides the greatest precision. At the request of many users wanting this extra precision, TMG changed to decimal as its internal format for Version 8 which is what you are now seeing.
As the label on Preferences-Current Project Options-Places itself states, that Preference choice is for "display" purposes only. TMG Help in the topic about "Current Project Options: Places" states:
Select the format to use for displaying the Latitude/Longitude in the Tag Box on the Person View screen.
Thus it only affects what you see in the Details window for an event with a place which has Lat/Long, as that is the only view of that data other than Tag Entry and MPL. That Preference is simply an aid to the human viewer. I know of no other TMG settings or Preferences to affect or convert the output of Lat/Long.
I believe the Tag Entry and the output in the Master Place List are intended to show what is "actually" stored in that place record because I believe that is what now will be output in reports.
Hope this helps explain,