YUCK YUCK! Do NOT use a page called Home and one called Posts and then use the reading option to spit em out. This is one of the dirtiest hacks in WordPress and its actually classes as a feature!
To do what you want is very simple, your index.php in your template is your home page and then create a simple postlist.php for your posts. Simply copy the index.php code into the other and then in your index.php you should then put your home page content, job done! Now obviously you cant edit your home page from the page menu, but then again a home page is a page of content like the others rather it is a portal to your posts and other pages and so as such should be done this way, also the page creation tool in WordPress only lets you add text etc so what you gonna have is a very weak home page using this technique!
Adding that option in WordPress reading section was a dumb idea! And assumes that the user has a post page and home page, well what if you had a home page and then several post pages? Like Home, News, Tutorials etc, you wouldnt have a central post page but several. Making this system pretty useless, as to do this would use categories for the sections and then the index.php as the home page.