The problem with using the default settings is this is one of the common ways that people are tricked into clicking on things that they should not run. I don't know why Microsoft continues to help out the malware writers. For example, people are asked to look at a picture named me.jpg.exe. If you hide known extensions, this is all you will see me.jpg.
/rant
Actually that attack wouldn't work that well. Just as this user came here asking why ".docx" was appearing. A user might be suspicious of a image that is showing its extension ".jpg" while the other images are not. But.. then again users...are well you know. Malware authors don't even have to hide there malware, users willing install them anyways.
In the work environment that I'm in, IT does not lock down these settings. If you sit at one computer, you may see file extensions. If you sit at another computer, you may not see them. If the only file in the download folder is me.jpg.exe - then the user really does not have much to compare to. (And most users just don't think about such issues.)
I (and many others) would rather that this option had never been offered. Then we could have some consistency in this area. Then again, I like the details view for files and I seem to be in the minority