Steps to reproduce:
1. Place a terrain piece, an object with No Overwrite, and an object without No Overwrite in a level. (Note: I've only tested this with no-effect objects, windows and exits; it might not apply to all object types.)
2. Turn terrain rendering off. (View -> Terrain Rendering, or just hit F2.)
Expected: The terrain piece is hidden; both objects remain visible.
Actual result: The terrain piece and the object without No Overwrite both get hidden; the No Overwrite object remains visible.
Note that the effect is purely visual. You can still select / manipulate the object, you just can't see it.
Severity: Purely visual bug, but one of the more-severe such bugs.
Already fixed, because that was trivial to do.