WD disabled it on purpose when auto is enabled.
8-bit won’t look any different anyways. All your DVDs and BluRays have 8-bit colour. All the 12-bit mode does is multiply each colour register value by 16 to turn it into a 12-bit value. There’s still only 256 steps to the colour register values – you don’t get any more colour on the screen in 12-bit mode, even if your screen is capable of displaying it.
Adding 12-bit mode to the WDTV was necessary for HDMI compliance – WD was required to offer it, even if it does nothing different than 8-bit. Regardless of what the TV can display, the WDTV will only output the 2^24 colours that the source material has.
Until the next generation of media actually starts using more than 8-bits of colour information in the registers, the extra colours (2^36 vs 2^24) will never get displayed on your TV.
Probably in 5 years’ time you’ll be able to purchase 12-bit discs.