I certainly don't remember turning it off, I wasn't aware that the setting was there.

On the iPhone there is no separate Facetime app that could warn you. When it is on a Facetime button appears on every contact. What it should probably do is show the Facetime buttons all the time and prompt you to turn it on if you press the button.

My iPhone was setup from a restore, maybe Facetime gets set turned off in those cases ?

I haven't tried any Mac to iPhone calls. I have made one iPod to iPhone call which worked fairly well, though my picture did start freezing at the other end at points.

Can't say I'll be rushing to use it.