If your camera is on a metering system such as Av Priority or Shutter Priority, that's when the FE lock comes into play. For flash on Manual, it's up to the photographer to determine his settings liao lei...
Is this the same for 400D or 40D as well?
Sadly, the manual doesn't say anything about FEL being limited to Av and Shutter priority in the creative zone.
Going by what is stated in the manual, it only say that the flash output will be adjusted. Given that at the point of locking FE (in manual mode for camera), my shutter speed, aperture and ISO values are fixed, it would not be too hard for the camera to calculated the required FE. This is simpler than on, for example, Av mode, where the shutter speed and the FE have to solved.