The "Open Safe Files" option is not related to this particular malware. Flashback uses a weakness in older versions of Java to sneak in the back door, so that option would have no effect.
The last major malware outbreak, in May of last year, did involve that option, though. At the time, Apple installer files were considered safe files, since opening them did not actually execute any third-party code. However, the creators of the MacDefender malware created a trojan that downloaded an installer file automatically, and on machines with that option turned on, the installer opened immediately. That in itself was not a threat, as it could not install itself, but many people thought that this was an update or important software from Apple, because of how it opened up by itself, and proceeded with the installation.
I'm not sure whether Apple has tightened down the definition of a "safe" file at this point, but regardless, I'd hate to one day discover that someone had figured out how to get malware installed using a "safe" file. For example, if a Microsoft Word file is considered safe, there's malware that appeared recently, taking advantage of an old vulnerability in Microsoft Word 2004 and 2008 to install itself automatically once a malicious document is opened. That would be a bad thing to have downloaded automatically by a JavaScript and then opened automatically by Safari, infecting your machine with no user interaction needed, all just from visiting a web site!
Thus, I recommend leaving that option off.
For more on these kinds of issues, see my Mac Malware Guide.
(Note that my pages contain links to other pages that promote my services, and this should not be taken as an endorsement of my services by Apple.)