Static Simulation keeps on changing component contacts back to No Penetration after I mesh...

Are they actually touching? Maybe if it can't find any contact it defaults to no penetration.

Can you reproduce the behavior in a separate, new test part?

I tried toggling the setting in a test part and did not have any problems.

Can you post the file to this forum so everybody can look at it?

The issue could be related to incompatible / compatible meshes, since no-pen contacts suffice with incompatible meshes and bonded contacts do better with compatible meshes.