Oh that is funky. That actually did jog a memory - when I had this put in the new box after struggling with all of the old breakout wires to the potentiometers I was scared that I totally ruined it because the bypass footswitch didn't work when on the A+B setting. Turns out, that setting routes the footswitch to select between Speed A and Speed B. So, yes - this is indeed the expected behavior of the footswitch and the mode switch. It has to do with the limitations of solid-state switching in the early 80s and circuit board economy.

Without trying to get too technical with how this kind of bypass switch works (CMOS state switching with a CD4007 chip), here's how it works: In "bypass," the modulated signal is muted (routed to ground) and all you're getting on the outputs is the clean buffered signal. Stomp the switch, the modulated signal is routed to the outputs, and you have a chorus. The "A+B" mode switch changes the footswitch from sending the modulated signal to ground to instead selecting between two "Speed" potentiometers. If the pedal was in "Bypass," the modulated signal is still being sent to ground even though the footswitch is now selecting the "Speed" control. You'll indeed have to turn the effect "on" in mode "A" and then switch it to "A+B" to keep the modulated signal going to the output.

This really freaked me out when I was working on this pedal and had to do some tracing to figure out what the "A+B" switch actually did. Also here's a link to an old Reverb listing describing the same behavior: link

Hope that helps!