I think you are mis-remembering the preference item. There is a choice for where to look when relinking, but the behavior with converting files from previous versions has always been this way.
And I would caution against overwriting the old versions. Use a new name -- you never know when you're going to need that old file again because the new one goes suddenly bad.
This behavior is exactly the same as it’s always been.
We are loosing so much time in a day having to scroll thru all the files in our server to either pick the right folder, or finding the file afterwards when we forgot to choose the right folder when we saved.
If you are using OSX try this Applescript for saving converted files. It automatically saves the file to the same folder with a 2015 suffix added.
--Saves converted in same folder with 2015 suffix
set a to "2015"
tell application "Adobe InDesign CC 2015"
tell active document
--get the file's path and name and append
set n to name
set n to (characters 1 thru -6 of n as string) & a & ".indd"
set filepath to file path & n as string
--if it has been converted save to the same path with no dialog, otherwise save
if converted is true then
save to filepath
set filepath to file path & name as string