Hmm... are you using a custom theme? I believe some themes may override this directly in the theme's code. (Specifically, query creation and manipulation methods allow the number of posts to be returned to be passed in as a parameter.)
To test this, try switching over to a default theme (Twenty Ten or Twenty Eleven) and seeing if your posts per page setting is honored. If it is, then it's likely the theme that's causing this change (Plugins, though not as likely, could also be modifying the page queries).
If this is the case, I'd recommend running a search on the source files included in your theme's directory... look for "posts_per_page" and see if there are any results.
I hope this helps!