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As far as I can tell, local/board moderators do not see IPs by default. The only IP they can see it should be their own (like anyone else I think, I'm not entirely sure at the moment).
If you changed their permissions that's another matter, in which case the solution is identify the correct permission to remove.

Why am I insisting on the point?
Because in Elk philosophy, if you see an IP it means you have permissions to do something with that IP like ban, deal with members (register/approve/delete), etc. that anyway are not "board" permissions.

If it is not that, then it may very well be a bug, and it would be nice to debug it together.

I think what happened here is the same thing that happened back when myself and others were setting up SMF permissions. If someone who doesn't know different is setting up permissions for moderators, and they see a permission titled "Moderate forum members", they will naturally check it because they are setting up moderators and they want their moderators to be able to, in the literal sense, not in the WTF YaBB sense, moderate forum members.

If the permission is not related to standard moderation functions, then it would make more sense to give it a title that reflects what it does. Something like "Administrate member accounts", for example. If it said that instead, nobody would check it if they just wanted normal moderators.

Short version: is bug, but not in code. Is bug in text string. Which is easy to fix.