Safe state machine option wasn't yet available with Quartus V5, so it can't play a role in the said document.
I don't have the May 2005 version of the Quartus Handbook, but I found the same statement in the previous December 2004 edition. In October 2005, (with Quartus V5.1) the chapter was completely edited. Particularly the limited effect of a default statement had been clarified:
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Synthesis tools remove any logic generated by a default state if it is not reachable by normal state machine operation.
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According to a more recent revision history, your May 2005 version is reflecting Quartus V5.0 functionality. I doubt however, that Quartus V5.0 is behaving different regarding default state.