I have tested this configuration and it still creates an Incident and does not link email to the appropriate BO.
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Similarly to yourself I couldn't get this to work. Instead, I changed the record creation settings in Email Configuration > Mail Box. Unfortunately, this only means 2 BO have the potential to be linked.
In this case, it tries to create a Service Request in the first instance (it can't) so it will link if possible, otherwise, it will create/link an Incident.
If anyone has an optimal solution, please share!