org-babel-expand-noweb-references in the current master branch ends with: (replace-regexp-in-string noweb-re (lambda...) body nil t 2)
I.e., the FIXEDCASE argument to replace-regexp-in-string is nil. This has the effect that in #+BEGIN_SRC elisp :noweb-ref AA (ignore) #+END_SRC #+BEGIN_SRC elisp :noweb yes <<AA>> #+END_SRC the second block is expanded as "(IGNORE)". That probably is a bug. FIXEDCASE should be t.