So for anyone here who was wondering what was going on, and being like: This is a terrible feature! It doesn't seem like it was, at least, not like this.
If you use your pre-patch 3 character, and dismiss a follower you will be handed their food, alchemy and key bags. This is sort of something everyone knows.
However, if you make a new character post-patch 3, those 3 bags are brown now, as in normal bags. They are not the usual quest color (orange). Probably true of quite a few things. You can dismiss followers and nothing will happen, or rather nothing particularly negative. You might get a key or two that they've picked up.
So the concept here seems to be backwards compatibility. They have not adjusted the old items to match the new system. So the whole concept of it needing to be toggled is sort of... not the problem. They need to properly translate these items from quest items into another format of item, like they did with the brown bags, instead of the orange ones. They haven't though. I don't know why.
Sort of a suggestion actually: Larian could always introduce some kind of npc that can exchange the old items for new compatible items. Seems like a cheesy fix but it could work.
Anyway I hope everyone here continues to voice their distaste of this though. I'd like to start playing my pre-patch 3 character again without a headache.
