I have found the solution to this problem (at least for me)
Because KotOR2 doesn't run as an administrator, it's not able to save anything to the \Program Files\ folder on Windows Vista and Windows 7. So saves aren't there and the real configuration file it's using aren't there either.
After some digging, I found the location of my save files under...
C:\Users\RobertM525\AppData\Local\VirtualStore\Program Files\LucasArts\SWKotOR2\Saves
What's more interesting (and relevant to this discussion) is what I found under the parent folder to that: swkotor2.ini
So while there's one under C:\Program Files\LucasArts\SWKotOR2, editing that version does nothing because the game isn't able to do anything with that folder anyway since it has no administrative privileges.
TL;DR Edit the swkotor2.ini under C:\Users\[Your User]\AppData\Local\VirtualStore\Program Files\LucasArts\SWKotOR2\