Correct. Photoshop now allows you to select jpeg if you have a 16 bit image open, but it will save it as 8 bit. He thought the option would also keep it as 16 bit.
"PSCS5 – If you’re working with 16 bit files and want to save them as a JPEG, you can now select the JPEG file format from the list in the Save As dialog box. However, you need to know that saving as a JPEG will convert the file from 16 bit down to 8 bit (as the JPEG file format does not support 16 bit)."