What I have found is after a research done over few days and may not be the exact answer to my question above, but being said that it will help someone like me who is looking for solution to the issue.
My aim was to control the check box state (mostly keep it unchecked) while user opens the Arc Map so that all the customization's where we have feature selection happening that will work exactly the way it was working in Arc Map 9.3 i.e. no scaling the selection symbol.
This is kind of hack that I am planning to use if I don't find any reasonable answer. I have tested it on my development environment and it is working fine.
After spending few days in research I was able to locate registry setting that controls the check / uncheck status of "Scale Selection Symbols" check box on Selection Options
0 (to uncheck the check box) or 1 (to check the check box)
However above hack doesn't provide ability to the user to change check box programmatic way when Arc Map is running and user has to apply registry change before launching/opening Arc Map (Thankfully in my case I have windows form based Launcher application which does come up with a business group/role based UI for user to choose what license to check out and i can easily apply user registry changes in this form and then when user launches Arc Map through it, it should work as expected).
Please feel free to provide any suggestion or other more sophisticated/programmatic approach which will not require to apply the hack explained above.