I recently experienced this issues with my custom work flow designed using share point designer. Work flow didn't started automatically even though option was selected.
After doing a little research I found that issue was due to a security fix in WSS 3.o SP1
Therefore, after installing WSS 3.0 SP1, declarative workflows will not start automatically start if
1. The Windows SharePoint Services Web application runs under a user's domain account.
2. The user logs in by using this domain account.
3. The site displays the user name as System Account.