I've always had this option switched off as I found the noise was too much (and I only follow 240 people). With all @ replies turned on you only get half the conversation when you're not following the third person.
I found the best way to find new people to follow is to visit the profile pages of people I find interesting and see who they are conversing with. This way my twitter stream is not filled with @replies that are less relevant to me.
This is exactly what I do, and IMO if you're following a decent number of people it's the only viable solution. It drove me nuts when I briefly turned on the option to see @replies to people I didn't follow. You perpetually see half of a conversation and it makes little sense out of context.
I found the best way to find new people to follow is to visit the profile pages of people I find interesting and see who they are conversing with. This way my twitter stream is not filled with @replies that are less relevant to me.