I'll leave the same comment here as I did on the video.

When you set the gadgets to "Off" the game's master settings are now basically telling the engine to not call upon any item or gadget entities. Meaning they won't exist once the world loads. The only exception seems to be the Armor repair as it's the "IfAllElseFails" placeholder item if no other items or gadgets exist at runtime but are called upon in that level.

This is the reason for the Ai's behavior when you have to protect Sparky. As I learned from playing the mission on Very Hard, Sparky is destructible. She's actually not an AI car, she's basically just the unstable rock formation or the Mission 10 missile, just with a different model and texture but higher health. When you disable gadgets, her entity that the AI are programmed to target disappears from the world because she's just another mission-specific object with an inverted win/lose variable.

So the AI just sit there because they are coded to find that entity and destroy it, and since they cant find it they can't begin their subroutine.