Must be new to 08.
Why are you using this setting anyway. You said you want the Bump node to use your normal map as a bump... So why change it to normal map?
Just convert your Normal to a Bump map. Crazy Bump is free I think, and it can do this all for you.
Else you could just take it into photochop, then Grey scale.
To be honest I think it will except the straight normal map.
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