Found it. It appears to be a bug in both the rc version and the dev version of the module Taxonomy Access Control for D7. Details from project page:
Access control for user roles based on taxonomy categories (vocabulary, terms).
- Automatically controls access to nodes (based on their taxonomy terms).
- Configuration page for each user role.
- Three node access permission types: View, Update, Delete.
- Two term access types: View tag, Add tag.
Once a user has access to the edit node form AND they are allowed to 'add tag' on the access-rules-for-user page for that vocabulary, that term will show up and will be able to be ticked/set on the node form regardless of whether or not the default and other vocabulary terms in that vocabulary have been set to 'allow' or 'deny' the 'add tag' on the access-rules-for-user page. Hopefully this makes sense to others as well.
