no, its the development(R&D) mode of the phone. you can only disable watchdogs in development mode. in production mode you can't. once you turned the switch it stays in that mode with disabled watchdogs until you put them on again. its comparable to changing settings in the bios of a pc.

if its only for gnome: that should work.

but if its only for gnome you might want to try a different approach:
have a close look at the easy debian. there a many howtos in the web.
basicly you install a ubuntu image on the sd or in a file. mount that(in case of a file via loopback). then you go in via chroot. in the chroot you can configure a xserver. on that xserver you can have gnome. only thing you have to take care is to either use a virtual server(server in a window like xnest ) or put it on a different vt(eg put it on vt9) and change to that vt via "chvt". that would result in having hildon /and/ gnome running on the phone as an addon to maemo.