I upgraded from 1.6.1 to 1.7.6, the plugin has always been network activated (as far as I know, I inherited this a few years ago). Last time I tested it I did get the behaviour you mention, with the settings in the Network Admin area. But this time the settings are showing up for each blog, as it did in 1.6.1.
I didn't think about the complication of the users.
The situation is that I have various blogs are restricted to registered users of the network (using the Network Privacy plugin). This allows on those with a WP user to see the site, which on our setup is restricted to those users with an LDAP/AD account, i.e. staff and students. On some blogs we have restricted access to staff only, to do this we've selected the "restricted to registered users" option and changed the base DN in the Dir Auth settings to just the staff container, this prevents students from being able to see the blog.
I do have a workaround which I'm going to test which could resolve the issue. When I upgraded I also installed the Multisite Plugin Manager which lets me install a plugin on all blogs at once, this would let me network disable the Dir Auth plugin and install it on all blogs with one click. I'll test this tomorrow and see if it resolves the issue.