Ok, I finally got it right but I had to reinstall the game 3 times. The problem was related to the installation folder - I bought the game from GOG and, by default, the game installs to a directory under "Program Files".
Whenever I tried to change anything in the config file, the system would ask for my permission to modify file (running Windows 7), via a security pop-up. I always managed to modify it, but failed to notice any changes when actually running the game.
On my last try I decided to install it to another directory (something like c:\games\IL2). And that did it - no problems modifying the config file and very nice waves in-game!
Hope this helps someone else.