After the reboot, I wanted to see this in action so I typed color exits and received confirmation that it was toggled, here is a copy of what I see with the toggle off:

<72%hp 56%m 100%mv 1579tnl> color exit
You no longer see highlighted room exits.

<72%hp 56%m 100%mv 1579tnl> l
Palace Way
This is a rather large street leading to the Palace. It has many
gold decorations covering the sidewalk. Diplomatic groups and
emissaries are the main travelers on the road. The Castle "Cataclysmic
Bounds" lies at the end of the way. To the west is the main intersection.
To the south lies the Warrior's guild.


A citizen of Arial City is here, scrutinizing you closely.
A diplomat is here, trying to be diplomatic.
A diplomat is here, trying to be diplomatic.
A diplomat is here, trying to be diplomatic.
A diplomat is here, trying to be diplomatic.
A pilgrim is here, resting from his travels.
A pilgrim is here, resting from his travels.


And here is a copy of what I see with the toggle on:

<90%hp 69%m 100%mv 1577tnl> color exit
You now see highlighted room exits.

<98%hp 76%m 100%mv 1577tnl> l
Palace Way
This is a rather large street leading to the Palace. It has many
gold decorations covering the sidewalk. Diplomatic groups and
emissaries are the main travelers on the road. The Castle "Cataclysmic
Bounds" lies at the end of the way. To the west is the main intersection.
To the south lies the Warrior's guild.


A citizen of Arial City is here, scrutinizing you closely.
A diplomat is here, trying to be diplomatic.
A diplomat is here, trying to be diplomatic.
A diplomat is here, trying to be diplomatic.
A diplomat is here, trying to be diplomatic.
A pilgrim is here, resting from his travels.
A pilgrim is here, resting from his travels.

There isn't any difference in the room exits, no exits in bold letters. I spoke to an imm on at the time and he said it works for him. *shrug*