That game option disables the random placement/generation of goody huts.
But the map has pre-placed goody huts in specific locations, and the game option doesn't delete those; it only prevents the random placement/generation of them.
Leoreth replaced the default goody hut placement system with his own. When you start a new game in v1.17, there are no huts. They pop up, or start popping up, from around Turn 4. So a game option that "prevents the random placement/generation of them" should work. If it doesn't work, that's a bug - which, now it has been reported, will hopefully be corrected when Leoreth works down to it on his "to do" list.
In other mods, e.g. RFC or RFC Marathon or SoI or RFCE, you can remove the pre-placed goody huts from a scenario's map file, add "Option=GAMEOPTION_NO_GOODY_HUTS" to the BeginGame section, and play (mostly) without huts. I do this routinely when playing for pleasure, as opposed to a tournament or writing a player guide. I consider them a distraction. If the huts exist, I will seek them out, if only to deny them to the AI.
Bottom line, there aren't any pre-placed huts in the files I'm using. DoC 1.17 has stub .txt files for the 3000 BC, 600 AD, and 1700 AD scenarios, plus an RFC_Earth.txt file that contains the landscape data. A Python script (Dawn_of_Civilization.py) assembles the map from these files and other game data at run time. I searched RFC_Earth.txt for "ImprovementType=IMPROVEMENT_GOODY_HUT" but didn't find it. I did a more detailed search and removed two instances of "ImprovementType=IMPROVEMENT_TRIBAL_VILLAGE". That's all there was.
Yeah, the mod does not use the pre-existing mechanism to place goody huts, so the option does not take effect.
Are there any other Custom Game options that do not take effect? If the player selects "Raging Barbarians" or "No Barbarians", for example, do they get their choice? I know that some options DO take effect (for example, OCC works, which is ... interesting ... if playing a civ that requires city conquest), but it's frustrating to select options, not knowing if your choices will be respected.