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Description
I followed the configuration guide. My Config/DefaultEditorPerProjectUserSettings.ini looks like this:
[/Script/UnrealEd.EditorLoadingSavingSettings]
bSCCAutoAddNewFiles=False
[/Script/UnrealEd.EditorLoadingSavingSettings]
bAutomaticallyCheckoutOnAssetModification=True
bPromptForCheckoutOnAssetModification=False
My Editor Preferences look like this:

I have restarted editor twice for good measure to triple check these settings are set.
Most asset modifications will still result in the checkout window appearing:

And when the checkout button is clicked, the error window appears:

In a nutshell, auto checkout fail to suppress the checkout prompt dialogs completely, so very often the checkout dialog shows up at the same time asset is already auto checked out, and then shows blocking window message. This makes auto checkout functionality essentially useless, because not only does it still require manual intervention to check out assets, it now requires two click actions instead of one.
EDIT:
I found out how to reproduce it more reliably:
- Open some asset, like static mesh for example
- Modify some property, for example assign different material to one of the slots
- Click save immediately, within two seconds.
It appears that the checkout starts to happen immediately after modification of the asset, but the checkout process takes some while (few seconds). If the save is performed in this time window, then it will pop up the checkout prompt window while the asset is already being checked out.
I am able to avoid this by waiting quite a long time (5+ seconds) before manually saving the asset but that would slow down the workflow to unacceptable degree.