John my guess is that since I am configure for mode C, powerflarm is smart enough to ignore the mode S altitude default. I believe this was my conclusion at the time when I first configured my powerflarm. My config file is based on their sample config file which was provided before the config tool was available.
The altitude difference readings I get are very accurate based on flying with gliders with transponder and flames the numbers are always very close (and the distance is also impressively accurate even though it is only estimated based on strength).

Ramy