Hi William -
"Show Sheets as Tabs" causes a richer set of metadata to be loaded and retrieved from the server.
When the option is de-selected, we only retrieve and process information for the specific sheet you're initially rendering from the server. So in essence the other sheets "don't really exist" as far as we're concerned - we haven't pulled metadata for them....therefore the "sheet not found" error.
I haven't seen this error myself, but I'm not overly surprised that it occurs.