The UI label was incorrect here - the box should be checked if you are NOT shipping thi sproduct.  Super confusing.
Edit Shipping link inside Variations metabox has one major flaw - it can set, but not unset, product meta.  Not usually a problem for weight and pricing fields, but huge problem for the no shipping metabox. Needs some rethinking here, but this should resolve the main issue of not being able to unset that box.