I think the 'avoid u-turns' option tells the device to only do u-turns when it's the only choice - effectively a 'no u-turn' restriction at every intersection. I assume that the routing algorithm follows the actual turn restrictions when the 'avoid u-turns' option is disabled. But as Gerd pointed out, he's not sure if the no u-turn restriction in my example actually has an effect so my assumption could be wrong.

Thanks, Ben