We are unable to generate pay requisition for line items, either manually or through "get material deliveries", for which quantities exceed the budgeted values even though the This option is enabled in the project settings.
Project Settings will only matter before a Contract or Purchase Order is created. After that, you need to make the change on the Contract or Purchase Order itself in order for the pay req to be affected. Open the Contract or PO that the req is being written against and select "Cost Options" (or Req Options) from the "Select an Action" drop down menu. Make your changes there instead of in Project Settings.