I spent some time looking into this and I don't think I can fix it either, or at least I don't want to put more time into it at this point.
The problem is you can't redirect inside updatepanel, so when you try to force it to redirect with that setting it has to unhook the controls from triggering the updatepanel ajax postback, otherwise the redirect won't happen.
But then on login error the updatepanel does not get updated
there might be some fancy way to solve it instead of unhooking the updatepanel, maybe javascript could be triggered after the updatepanel on success to change the location.href to the redirect url
but at this time it is not something I have time to dedicate to solving, so my recommendation is just don't use the sign in module, just use the login page if you are forcing a specific page redirect on login (which I also don't recommend doing and would not do myself without some real specific need to do that).