You can find this control on the Display Properties – Appearance Tab – Effects dialog. It not only hides underlined letters, but also it can hide focus at certain times. If you’ve ever wondered why focus appears sometimes and it doesn’t appear at other times, check out these scenarios:
To view this behavior, a little prep work is required. First open My Computer and set the view to details. Select (or click) on one of the drives, so it has focus and selection. Close My Computer. Now you’re ready to begin.
With “Hide underlined letters…” checked the behavior is as follows:
Using the keyboard, open My Computer. Press the windows key on the keyboard (or if you don’t have that key, tab around on the desktop until Start has focus), and navigate to My Computer. Press Enter
Results: Focus is visible
Using the mouse, open My Computer.
Results: Focus in not visible.
With “Hide underlined letters…” unchecked the behavior is as follows:
Results: Focus in visible.
The moral of the story: If the “Hide underlined letters…” checkbox is checked, do not expect focus to be visible at all times.