Just to say you are not alone in finding the current behaviour odd. There must have been some reason for it, but I just cannot understand what benefit there is in reloading the settings from the config file if they have been overwritten on the command line.
A horrible workaround we have found is to specify the /CONF parameter and ensure the ORIGINAL config file (ie the one referenced when testing) does not actually exist on the real server.
Alternatively setting a variable via /SET can be done something like this:
dtexec /FILE "C:\xxx\whatever_package.dtsx" /CHECKPOINTING OFF /SET "\Package.Variables[Connection_String].Value";"\"Data Source=XXXXSERVERXXX ;Integrated Security=SSPI;Initial Catalog=XXXDBNAMEXXX;Provider=SQLNCLI10.1;Persist Security Info=True;Application Name=myssispackage;\""
That was extracted from running a dts package from with a SQL Server Agent job, with a few names changed for things like server_name, db name etc. Offhand I cannot recall what all the escaped " with \ was for, but I can assure you the original job runs fine! The aim of the variable is to hold a full connection string, so the SSIS package uses whatever server and database are defined in that connection string.
To avoid the config file overwriting the variable, ensure the variable (in the example it was called Connection_String) is NOT in the config file.
Hope that helps.